Glossary
Whether you are buying a home or refinancing, applying for a mortgage is a big step. Use our Mortgage Terms Glossary to help understand every step of the process. Our glossary of mortgage loan terminology defines a variety of terms used by loan officers and real estate professionals.
Acceleration clause
The clause in a mortgage or trust deed that stipulates the entire debt is due immediately if the mortgage defaults under the terms of the contract.
Close XAcquisition cost
Under an FHA loan, the purchase price or appraised value of the property plus the estimated closing costs.
Close XAdjustable Rate Mortgage (ARM)
A mortgage in which the interest rate is adjusted periodically based on an index. Also called a variable rate mortgage.
Close XAdjustment_date
The date the interest rate changes on an ARM (adjustable rate mortgage).
Close XAdjustment Interval
For an adjustable rate mortgage, the time between changes in the interest rate charged. The most common adjustment intervals are one, three or five years.
Close XAdjusted book basis
The purchase price of a property plus any capital improvements less accrued depreciation, if any, to the date of the sale.
Close XAmortization
Literally to “kill off” (root: mort) the outstanding balance of a loan by making equal payments on a regular schedule (usually monthly). The payments are structured so that the borrower pays both interest and principal with each equal payment.
Close XAnnual Percentage Rate (APR)
A figure that states the total yearly cost of a mortgage as expressed by the actual rate of interest paid. The APR includes the base interest rate, points, and any other add-on loan fees and costs. As a result the APR is invariably higher for the rate of interest that the lender quotes for the mortgage but gives a more accurate picture of the likely cost of the loan. Keep in mind, however, that most mortgages are not held for their full 15 or 30 year terms, so the effective annual percentage rate is higher than the quoted APR because the points and loan fees are spread out over fewer years.
Close XAnnuity
A series of income payments of receipts over a period of years.
Close XApplication
A mortgage application requires borrowers to submit information regarding their income, savings, assets, debts, and more.
Close XApplication Fee
The fee charged by the lender to the borrower for applying for a loan. Payment of this fee does not guarantee that a loan will be approved. Some lenders may apply the cost of the application fee to certain closing costs.
Close XAppraisal
The determination of property value based on recent sales information of similar properties.
Close XAssessment
Determining a property’s value for the purpose of taxation.
Close XAssumable Loan
These loans may be passed on from a seller of a home to the buyer. The buyer “assumes” all outstanding payments.
Close XAssumption
Buying property and assuming the responsibility of the exiting mortgage.
Close XAppreciation
Increases in property value due to fluctuations in the market, inflation, et al.
Close XAsset
Valuable items, encumbered or not, owned by a person, corporation, or entity.
Close XAssumable Mortgage
A mortgage that provides for a buyer to “assume” all outstanding payments when a home is sold. The buyer usually must meet qualification standards to assume a loan.
Close XBalloon Mortgage
Behaves like a fixed-rate mortgage for a set number of years (usually five or seven) and then must be paid off in full in a single “balloon” payment. Balloon loans are popular with those expecting to sell or refinance their property within a definite period of time.
Close XBalloon Payment
The final lump sum that is paid at the end of the balloon mortgage.
Close XBankruptcy
A tactic that individuals use to relieve themselves of debts and/or liabilities when they are no longer able to repay. The most common form of individual bankruptcy is a Chapter 7, when an individual frees himself from most of his/her debts. Borrowers who have undergone bankruptcy usually cannot qualify for “A” paper loans until after two years after declaration and a re-establishment of credit.
Close XBest Faith Estimate
An estimate of the total costs for securing a real estate loan, that is given to borrowers prior to closing.
Close XBill of Sale
A written document that transfers a title to personal property.
Close XBiweekly Mortgage
Mortgage loan payments that requires a payment twice monthly, yielding thirteen payments per year instead of twelve. This significantly reduces the time a principal is paid off.
Close XBlanket Mortgage
A mortgage secured by the pledging of more than one property or collateral.
Close XBook Value
Acquisition costs less any accrued depreciation.
Close XBroker
An individual in the business of assisting in arranging funding or negotiating contracts for a client but who does not loan the money himself. Brokers usually charge a fee or receive a commission for their services.
Close XBridge Loan
An equity loan secured to solve short-term financing problem.
Close XBudget Mortgage
A mortgage that includes a portion for taxes and insurance as well as principal and interest.
Close XBuydown
Allows loans to be made at less-than-market interest rates by paying front-end discounts. The interest rate is brought down for a temporary period, usually from one to three years. In oder to acquire this discount, a lump sum is paid and held in an account used to supplement the borrower’s monthly payment. After the discount period, the payment is calculated as the note rate.
Close XCallable Debt
A debt security in where the 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 date.
Close XCaps
A set percentage amount by which an adjustable rate mortgage may adjust each adjustment period. For adjustable loans, caps are usually quoted as two numbers as in 2/6. The first number indicates how much a loan may adjust at each adjustment period while the second number indicates how much a loan may adjust over its lifetime.
Loans like the 3/1 and 5/1 adjustable which have an initial fixed period are quoted with 3 numbers as in 3/2/6 which would mean that the first adjustment may be as much as 3%, subsequent adjustments are capped at 2% each, and the lifetime cap is 6%.
Two-Step loans are quoted with a single cap, which is the amount by which the loan may adjust at its single adjustment date.
Close XCarryback Loan
A loan in which a seller agrees to finance a buyer in order to complete a property sale.
Close XCertificate of Eligibility
A veteran’s evidence of entitlement for a VA-guaranteed loan.
Close XCertificate of Reasonable Value (CRV)
An appraisal that has been performed on a property that is being paid for a VA loan. After the property has been appraised, the Veterans Administration issues a CRV.
Close XClear Title
A title that is free of liens or any legal question as to the ownership of the property.
Close XClosing
Final arrangements to transfer title of property as well as allocate charges and credits.
Close XClosing Costs
Closing costs are fees paid by the borrower when a property is purchased or refinanced. Costs incurred include a loan origination fee, discount points, appraisal fee, title search, title insurance, survey, taxes, deed recording fee, and credit report charges. All closing costs are separated into “non-recurring,” and “pre-paid.” Non-recurring charges are any items that are paid only once because a loan was obtained or a property bought, such as a loan origination fee. Pre-paid charges are those that recur over time, like insurance and property taxes. These are summarized in the Good Faith Estimate.
Close XCloud
An outstanding claim or encumbrance, that, if valid, would affect or impair the owner’s property title.
Close XCollateral
Property, real or personal, pledged as a security to back up a promise. In a home loan, the property is considered collateral that can be revoked if loan is not repaid according to the terms of the mortgage or deed of trust.
Close XCommitment
A written letter of agreement detailing the terms and conditions by which the lender will lend and the borrower will borrow funds to finance a home.
Close XConforming Loan
A loan for up to and including $417,000 in the continental United States (Alaska and Hawaii limits are higher).
Close XConstruction Loan
A short term loan for funding the cost of construction. The lender advances funds to the builder as the work progresses.
Close XConversion
The right of a borrower to convert an adjustable or balloon loan into a fixed loan.
Close XConventional Mortgage
A mortgage loan that is obtained without any additional guarantees for repayment, such as FHA insurance, VA guarantees, or private insurance. This is usually given at an 80% loan-to-value ratio.
Close XCredit Loan
A credit loan is a mortgage that is issued on only the financial strength of a borrower, without great regard for collateral.
Close XCredit-Loss Ratio
The ratio of credit-related losses to the dollar amount of MBS outstanding and total mortgages owned by the corporation.
Close XCredit Rating
Borrowers are rated by lenders according to the borrower’s credit-worthiness or risk profile. Credit ratings are expressed as letter grades such as A-, B, or C+. These ratings are based on various factors such as a borrower’s payment history, foreclosures, bankruptcies and charge-offs. There is no exact science to rating a borrower’s credit, and different lenders may assign different grades to the same borrower.
Close XCredit-Related Expenses
The sum of foreclosed property expenses plus the provision for losses.
Close XCredit-Related Losses
The sum of foreclosed property expenses plus charge-offs.
Close XCredit Report
A report to a prospective lender on the credit standing of a prospective borrower. Used to help determine creditworthiness. Information regarding late payments, defaults, or bankruptcies will appear here.
Close XDebt-to-Income Ratio (DTI)
The ratio of aggregate monthly debt to aggregate monthly income.
Close XDeed
A legal document which affects the transfer of ownership of real estate from the seller to the buyer.
Close XDeed of Trust
Synonymous to a mortgage. A deed of trust or mortgage is obtained, depending on the state in which the borrower will reside.
Close XDefault
The failure to make payments on a loan.
Close XDelinquency
Late- or non-payments of principal, interest, taxes, or insurance.
Close XDeposit
A lump sum given in advance as security. A deposit is always paid of a larger amount to be paid in the future. In mortgage and real estate terms, this is called the “earnest money deposit.”
Close XDepreciation
In real estate and mortgage terms, the decline in the property value.
Close XDiscount
Difference between the face amount of a note or mortgage and the price at which the instrument is sold in the secondary market.
Close XDiscount Points
A term used in government subsidized loans, such as FHA and VA loans. Refers to any “points” (one percent of the loan amount) paid in addition to the one percent loan origination fee.
Close XDown Payment
Money paid by a buyer from his own funds, as opposed to that portion of the purchase price which is financed.
Close X
