Mortgage Glossary

Adjustable Rate Mortgage (ARM)
A mortgage with an interest rate that can change periodically based on changes in a corresponding financial index.
Fixed-Rate Mortgage
A mortgage where the interest rate remains the same throughout the entire term of the loan.
Conventional Loan
A mortgage loan that is not insured or guaranteed by the federal government.
FHA Loan
A mortgage loan that is insured by the Federal Housing Administration, allowing for lower down payments.
VA Loan
A mortgage loan available to eligible veterans, active duty service members, and surviving spouses, guaranteed by the Department of Veterans Affairs.
USDA Loan
A mortgage loan backed by the U.S. Department of Agriculture for eligible rural and suburban homebuyers.
Jumbo Loan
A mortgage that exceeds the conforming loan limits set by the Federal Housing Finance Agency.
Interest-Only Loan
A loan where the borrower pays only the interest for a specified period, after which they pay both principal and interest.
Annual Percentage Rate (APR)
The yearly cost of a mortgage, including interest, mortgage insurance, and certain other fees, expressed as a percentage.
Interest Rate
The cost of borrowing money, expressed as a percentage of the loan amount.
Points
Prepaid interest paid at closing to reduce the interest rate on a mortgage. One point equals 1% of the loan amount.
Rate Lock
A commitment from a lender to hold a specific interest rate for a certain period of time.
Prime Rate
The interest rate that commercial banks charge their most creditworthy customers.
Margin
The number of percentage points added to the index rate to determine the ARM interest rate at each adjustment.
Index
A published interest rate against which lenders measure the difference between the current interest rate on an ARM and that earned by other investments.
Pre-qualification
An informal estimate of how much you might be able to borrow, based on unverified information you provide.
Pre-approval
A lender's written commitment to lend up to a certain amount based on verified financial information.
Underwriting
The process of evaluating a loan application to determine the risk involved for the lender.
Closing
The final step in executing a real estate transaction when the title is transferred from seller to buyer.
Escrow
A neutral third party that holds funds and documents during a real estate transaction until all conditions are met.
Appraisal
A professional estimate of a property's market value conducted by a licensed appraiser.
Home Inspection
A thorough examination of a property's condition by a qualified inspector.
Down Payment
The portion of the home's purchase price that you pay upfront in cash.
Loan-to-Value Ratio (LTV)
The loan amount divided by the property's appraised value or purchase price, whichever is less.
Debt-to-Income Ratio (DTI)
The percentage of your gross monthly income that goes toward paying debts.
Private Mortgage Insurance (PMI)
Insurance that protects the lender if you default on your loan, typically required when down payment is less than 20%.
Equity
The difference between what you owe on your mortgage and your home's current market value.
Principal
The amount of money borrowed or the amount still owed on a loan, separate from interest.
Amortization
The process of paying off debt through regular payments of principal and interest over time.
Escrow Account
An account held by the lender to pay property taxes and homeowners insurance on the borrower's behalf.
Closing Costs
Fees paid at the closing of a real estate transaction, typically 2-5% of the loan amount.
Origination Fee
A fee charged by the lender for processing a new loan application.
Title Insurance
Insurance that protects against losses from defects in title to real property.
Recording Fee
A fee charged by local government to record the new deed and mortgage documents.
Survey Fee
The cost of having a professional surveyor verify property boundaries.
Attorney Fees
Legal fees for services provided during the real estate transaction.
Condominium
A type of ownership where you own your individual unit and share ownership of common areas.
Townhouse
A multi-floor home that shares one or two walls with adjacent properties.
Single-Family Home
A standalone residential structure designed for one family.
Cooperative (Co-op)
A type of ownership where you own shares in a corporation that owns the building.
Planned Unit Development (PUD)
A residential development with common areas owned and maintained by a homeowners association.
Credit Score
A numerical rating that represents your creditworthiness, typically ranging from 300 to 850.
Credit Report
A detailed report of your credit history prepared by a credit bureau.
Debt Service
The cash required to pay back the principal and interest on outstanding debt.
Income Documentation
Financial records used to verify a borrower's income, such as pay stubs and tax returns.
Asset Documentation
Financial records showing savings, investments, and other assets.
Employment Verification
Confirmation of a borrower's current employment status and income.
Market Value
The price a property would sell for in the current market.
Comparative Market Analysis (CMA)
An evaluation of similar, recently sold homes to help determine a property's market value.
Multiple Listing Service (MLS)
A database of properties for sale used by real estate professionals.
Listing Agent
The real estate agent who represents the seller in a transaction.
Buyer's Agent
The real estate agent who represents the buyer in a transaction.
Earnest Money
A deposit made to show good faith in purchasing a home.
Contingency
A condition that must be met before a real estate contract becomes binding.
Refinancing
Replacing an existing mortgage with a new loan, typically to get better terms.
Cash-Out Refinance
Refinancing for more than you owe and taking the difference in cash.
Rate-and-Term Refinance
Refinancing to change the interest rate or loan term without taking cash out.
Break-Even Point
The time it takes for monthly savings from refinancing to equal the closing costs.
Amortization Schedule
A table showing each payment on an amortizing loan and how much goes toward principal and interest.
Balloon Payment
A large payment due at the end of a balloon loan.
Bridge Loan
A short-term loan used to bridge the gap between buying a new home and selling the current one.
Construction Loan
A short-term loan used to finance the construction of a home.
Gift Letter
A letter confirming that money received from a family member is a gift and not a loan.
Good Faith Estimate (GFE)
An estimate of closing costs provided by the lender within three days of loan application.
Home Equity Line of Credit (HELOC)
A revolving credit line secured by your home's equity.
Home Equity Loan
A fixed-rate loan secured by your home's equity.
Lien
A legal claim against a property that must be satisfied before the property can be sold.
Loan Modification
A change to the terms of an existing loan to make payments more affordable.
Lock-in Period
The time period during which a lender guarantees a specific interest rate.
Mortgage Broker
A professional who arranges mortgages between borrowers and lenders.
Mortgage Banker
A company that originates mortgages and typically sells them to investors.
No-Doc Loan
A loan that requires minimal documentation of income or assets.
PITI
Principal, Interest, Taxes, and Insurance - the components of a monthly mortgage payment.
Power of Attorney
A legal document giving someone authority to act on your behalf.
Prepayment Penalty
A fee charged for paying off a loan early.
Right of Rescission
The right to cancel certain types of loans within three days of signing.
Second Mortgage
An additional loan secured by your home, typically with a higher interest rate than the first mortgage.
Seller Concessions
Closing costs paid by the seller on behalf of the buyer.
Truth in Lending Act (TILA)
Federal law requiring lenders to disclose the terms and cost of credit.
Underwriter
A professional who evaluates loan applications and determines approval or denial.
Verification of Deposit (VOD)
Confirmation of a borrower's bank account balances and history.
Verification of Employment (VOE)
Confirmation of a borrower's employment status and income.
Warranty Deed
A deed that guarantees the seller has clear title to the property.
Yield Spread Premium
Compensation paid to a mortgage broker for selling a loan with an interest rate higher than the lender's par rate.
1003 Form
The Uniform Residential Loan Application used by most lenders.
203(b) Loan
The most common type of FHA loan program.
Acceleration Clause
A provision that allows the lender to demand immediate payment of the entire loan balance under certain conditions.
Adjustable Rate
An interest rate that changes periodically based on an index.
Adverse Action
A denial or unfavorable change in the terms of credit.
Affordable Housing
Housing that costs no more than 30% of a household's income.
Agreement of Sale
A contract between buyer and seller outlining the terms of a property sale.
Alt-A Loan
A loan classification between prime and subprime, typically with limited documentation.
Annual Cap
The maximum amount an ARM interest rate can increase in one year.
Application Fee
A fee charged by lenders to process a loan application.
As-Is Condition
Property sold without warranties, with all faults disclosed or undisclosed.
Assumption
Taking over the seller's existing mortgage payments.
Backup Offer
A secondary offer on a property that becomes active if the primary offer fails.
Basis Point
One hundredth of a percentage point (0.01%).
Biweekly Mortgage
A mortgage paid every two weeks instead of monthly, resulting in 26 payments per year.
Borrower
The person who receives funds from a lender with the obligation to repay the loan.
Buy-Down
Paying extra money upfront to reduce the interest rate on a mortgage.
Capacity
A borrower's ability to make mortgage payments based on income and debt.
Capital
The borrower's assets and net worth.
Cap Rate
The annual rate of return on a real estate investment.
Chain of Title
The history of all owners of a particular piece of real estate.
Clear Title
Title to property that is free of liens or legal questions.
Commitment Letter
A formal offer by a lender stating the terms under which it agrees to lend money.
Comparable Sales
Recently sold properties similar to the subject property used in appraisals.
Conditions
Requirements that must be met before a loan can close.
Conforming Loan
A mortgage that meets the purchase requirements of Fannie Mae or Freddie Mac.
HUD
The U.S. Department of Housing and Urban Development, which oversees federal housing programs and policies.
FHFA
The Federal Housing Finance Agency, which regulates Fannie Mae, Freddie Mac, and the Federal Home Loan Banks.
CalHFA Program
California Housing Finance Agency programs that provide affordable financing options for first-time homebuyers and low-to-moderate income families in California.
SONYMA Program
State of New York Mortgage Agency programs offering below-market interest rates and down payment assistance to qualified first-time homebuyers in New York.
DPAL Plus Program
Down Payment Assistance Loan Plus program in New York providing additional financing for down payment and closing costs alongside SONYMA loans.
NACA
Neighborhood Assistance Corporation of America, a non-profit organization that provides mortgage assistance and counseling services to help achieve affordable homeownership.
SOFR
Secured Overnight Financing Rate, a broad measure of the cost of borrowing cash overnight collateralized by Treasury securities. It replaced LIBOR as the primary benchmark for adjustable-rate mortgages.
LIBOR
London Interbank Offered Rate, a benchmark interest rate at which major global banks lend to one another. It was phased out in 2023 and replaced by SOFR for most U.S. financial products.
Broker Price Opinion (BPO)
A real estate professional's opinion of a property's value, typically less expensive and quicker than a formal appraisal but not as comprehensive.
Automated Valuation Model (AVM)
A computer-generated property valuation using mathematical modeling, public records, and market data. Commonly used for initial property assessments but less accurate than professional appraisals.
Mortgage Insurance Premium (MIP)
Insurance premium required on FHA loans to protect lenders against borrower default. Unlike PMI, MIP typically cannot be removed and may be required for the life of the loan.
Lender-Paid PMI (LPMI)
A type of private mortgage insurance where the lender pays the PMI premium in exchange for a higher interest rate on the loan. The borrower cannot cancel LPMI.
Single Premium PMI
A type of private mortgage insurance where the entire premium is paid upfront at closing in one lump sum, eliminating monthly PMI payments.
Split Premium PMI
A hybrid PMI option that combines an upfront premium paid at closing with reduced monthly PMI payments, offering a middle ground between borrower-paid and single premium options.
Principal Prepayments
Additional payments made toward the principal balance of a loan beyond the required monthly payment, which reduces the overall interest paid and shortens the loan term.
Piggyback Loans
A financing strategy using two mortgages simultaneously to avoid PMI or meet down payment requirements. Typically structured as an 80% first mortgage and 10-20% second mortgage (80-10-10 or 80-20-0).
Mortgage Recasting
A process where borrowers make a large lump-sum payment toward the principal balance, and the lender recalculates the monthly payments based on the new lower balance while keeping the same interest rate and loan term.