We have provided the Mortgage glossary below to help you better understand all aspects of mortgages.
Simply click on a term name to return to the top of the page.
203(b) - stands for Section 203(b) of the FHA Home Mortgage Insurance Program - the basic program; the government insures mortgage lenders against losses that may incur when financing the purchase of a proposed, under renovations, or existing one to four family dwelling house; or the refinancing of a person's current residency.
203(k) - stands for Section 203(k) of the FHA Rehabilitation Home Mortgage Insurance Program; the government insures mortgage lenders against losses that may incur when financing the purchase and renovation of a one to four family dwelling house.
Adjustable Rate Mortgage (ARM) - monthly mortgage loan in which the installments are varied as the interest rate is periodically adjusted based on an index; the margin stays the same; same as Variable Rate Mortgage.
Amenity - a characteristic or supplement to the property which makes the property more attractive or comfortable, but it is not essential; this includes environmental surrounding (such as location) or addition to property (such as a hot tub)
Amortization - monthly mortgage loan repayments which includes principal and accrued interest; the installments are in a set amount (does not vary) and is calculated based on how long the mortgage loan is.
Annual Percentage Rate (APR) - a type of interest rate shown as a yearly rate; its calculation incorporates principal, interest, points, insurance, and any other related fees.
Application - the lender’s form, to be completed by the buyer, which requests information about the buyer; this is the first step of the loan approval procedure.
Appraisal - an evaluation of the property value (taking into account condition, location, usefulness, and comparison of sales on properties with similar characteristics within the neighborhood); the purpose of this step in the loan approval procedure is to ensure that the buyer is not paying more than what the property is worth.
Appraiser - a professional that conducts the appraisal of the property.
Assessor - governmental representative that conducts an appraisal of the property for tax purposes.
Assumable Mortgage - a buyer takes over the existing mortgage as oppose to obtaining a new loan; this is done if the buyer is able to save money by not having to pay closing costs, etc.
Balloon Mortgage - short term (between 5 – 10 years) fixed monthly mortgage loan in which the installments are low, then at the end of the specified time, the remaining principal is paid in one lump sum.
Bankruptcy - pursuant to US Bankruptcy law, an individual or corporation files for bankruptcy because of their inability to pay their debts; a trustee takes over the assets to pay the outstanding debts
Borrower - the term used for the person who gets a loan from someone with permission and agrees to pay the loan back in addition to other fees stipulated by the agreement
Bridal Registry - a special account opened in which people, other than the buyer, can place money in that account and in turn is used for the down payment of the house; this program is supported by the FHA
Building Code - legislation from the local or state government level which regulates how a building is constructed or remodeled including the design and the material used; code is usually based on safety standards, but includes other standards such as accessibility for the disabled.
Budget - a detail itemization of expenses and revenues for a specific period of time, usually for a year
Cap - a limit of how much a monthly payment can increase or decrease for an adjustable rate mortgagee
Cash Reserves - money set aside over and above the down payment and closing costs
Certificate of Title - an official document issued, usually by the title company, that verifies that the real estate is legally owned by the owner
Closing - the property is legally transferred from the seller to the buyer; same as Settlement
Closing Costs - expenses paid by the buyer which are incurred as result of closing
Commission - a percentage paid to the real estate agent for coordinating the sale
Condominium - apartment building in which the individuals owned a specific apartment, but the common areas are own by everyone living in the building
Conventional Loan - this loan is not insured by the government; a private sector loan
Cooperative (Co-op) - a housing complex in which a group of people have stock in the entire complex, whereby each stockholder is entitled to live in one of the units; if there is a loan, each stockholder is required to pay a portion of it
Debt-to-Income Ratio - a percentage of the borrower’s debts divided by their gross earnings; the FHA’s standard is that the monthly mortgage installment should not exceed 29% of the borrower’s monthly gross earnings, and the monthly mortgage installment plus with all other debts should not exceed 41% of the borrower’s monthly gross earnings
Deed - a legal record showing the transfer of title for a property from seller to buyer
Deed-in-Lieu - the transfer of title from borrower to lender as a result of the borrower‘s defaulting on the mortgage payment
Default - the borrower is not paying the monthly mortgage installments or not meeting other requirements of the loan
Delinquency - the borrower is not paying the monthly mortgage installments in a timely manner pursuant to the requirements of the loan
Discount Point - if a borrower obtains a government loan, the borrower can prepay interest, referred to discount points, at the closing; each point is equal to one percent of the loan
Down Payment - the portion of the property price that is not financed, but paid by the buyer in cash
Earnest Money - during the negotiation period, the upfront money given by the perspective buyer to prove that the buyer is serious about the purchase of the property; the money is used towards the down payment if the buyer’s offer is accepted, is returned if the offer is not agreed upon, and lost if the buyer reneges on the offer<
Emergency Efficient Mortgage (EEM) - a FHA program which allows existing homeowners or buyers to include energy efficient improvement costs to their mortgage loan; no additional money is needed for down payment; the loan limits may be exceeded
Equity - the financial value an owner has in his property; it is determined by subtracting the fair market value of the property from the amount owed on the mortgage and other liens.
Escrow Account - a special account in which monies are used to pay for taxes and insurances; money deposited from a portion of the borrower’s monthly mortgage payments
Fair Housing Act - a law that prohibits discrimination based on race, color, national origin, religion, sex, familial status or disability in the sale and rental of housing or in obtaining a mortgage loan; enforced by HUD; penalties may be assessed if not in compliance; exemptions are owner occupied building with no more than 4 units or family housing sold or rented without a broker
Fair Market Value - a theoretical worth of a property from both the buyer’s and seller’s perspective
Fannie Mae - a privately owned shareholder corporation, but federally chartered, that funds mortgages they acquire by purchasing loans directly from the mortgage bankers and intermediaries mortgage-back securities, which are then sold in a wide variety of investors; this program makes loans more affordable to low and moderate income families; same as Federal National Mortgage Association<
Federal Housing Administration (FHA) - a governmental body that provides mortgage insurance to lenders and covers losses that incur if the borrower fails to pay the loan; established to help people who would not qualify for private sector loan
Flood Insurance - damaged caused by floods is not covered under the homeowner’s policies; only this type of insurance covers losses to your property due to floods
Foreclosure - the lender repossess and sales the property from the borrower who has defaulted on the terms of the mortgage.
Freddie Mac - a quasi-governmental agency that purchases private sector loans from HUD-approved mortgage bankers and sells them to investors providing lenders with additional funds; helps low and moderate income borrowers to obtain loans; same as Federal Home Loan Mortgage Corporation(FHLMC)
Ginnie Mae - : a quasi-governmental agency that provides mortgage-backed securities; by pooling loans from FHA or VA insured loans; helps low and moderate income borrowers to obtain loans; same as Government National Mortgage Association (GNMA)
Good Faith Estimate - a statement detailing the approximate closing fees; must be provided within 3 days after submitting a loan application
HELP - Home buyer Education Learning Program: a FHA program which provides education for potential home buyers on various topics that they need in order to be successful in purchasing and maintaining their home; completion of the program may reduce the buyer’s initial FHA mortgage insurance premium
Home Inspection - a qualified individual that assesses the condition and safety of the house, including determining if hazardous materials were used, what repairs are needed and if there is any pest infestation; this is conducted prior to closing on the property
Home Warranty - covers costs of repairs or replacement of the mechanical systems and attached appliances; guarantee is for a set amount of time and does not include the structure of the property
Homeowner's Insurance - insurance that protects the home and contents of the home against damages due to fire and the like, plus claims against the owner due to injury of a visitor
Housing Counseling Agency - a business that provides education for potential home buyers on various topics of interests that they need in order to be successful in purchasing and maintaining their home
HUD (US Department of Housing and Urban Development) - a cabinet-level agency who’s mission is to ensure safe & suitable housing for everyone without discrimination; increase home ownership, support community development, increase access to affordable housing and ensure compliance to fair housing laws
HUD1 Statement - a final statement detailing all the closing costs; given to borrower at time of closing; same as settlement sheet
HVAC - abbreviation for heating, ventilation, and air conditioning system
Index - a measurement used to determine the interest rate on adjustable rate mortgages
Inflation - the cost of goods and services increases thereby reducing the dollar’s value
Interest - as it relates to mortgage loans, it is the amount charged for borrowing money
Interest Rate - as it relates to loans, it is the amount charged for borrowing money shown in the form of a percentage
Insurance - a legal agreement for which the insurer (company that provides the insurance) pays a person money to cover cost incurred in an event of some type of loss; the person must pay for the insurance on a regularly scheduled timed.
Judgment - a Court’s verdict that requires the repayment of a debt; the Court may place a lien on the debtor’s property as collateral
Lease Purchase - a home buyer rents the home with the option to buy the home; their monthly payment includes the rent payment plus additional monies which is used towards the purchase of the house
Lien - as it relates to mortgage, it is a legal decision in which someone has claim on the debtors property
Loan - money borrowed which needs to be paid back and frequently includes interest in addition to the original sum borrowed
Loan Fraud - the borrower lies on the loan application
Loan-to-Value (LTV) Ratio - the relationship, expressed as a percentage, between the amount of the loan and the appraised value or purchase price of the property
Lock-In - a legal agreement of what the interest rate for the mortgage loan will be at time of closing
Loss Mitigation - the course of action the lender takes to assist the borrower in order that the borrower, who is at risk of defaulting on their loan, may avoid foreclosure
Margin - the fixed amount portion of the interest rate of an adjustable rate mortgage
Mortgage - a legal agreement between the lender and borrower in which the lender provides a loan to purchase property; the lender has ownership on the property until the loan is repaid
Mortgage Banker - the primary company that provides the loan then sells that loan to a secondary lender such as Fannie Mae, Freddie Mac, or Ginnie Mae
Mortgage Broker - the primary company that provides and processes the loan for a variety of lending companies
Mortgage Insurance - a legal agreement for which the lender is protected against losses incurred if the borrower defaults on their loan
Prepayment - advanced payment of the remaining mortgage loan prior to the end of the mortgage term; sometimes a penalty is assessed<
Principal - the original amount borrowed excluding interests or other fees
Private Mortgage Insurance (PMI) - mortgage insurance that is provided by the private sector for those borrowers which qualify; usually required when the borrower makes a down payment that is less than 20% of the purchase price of the property
Radon - a kind of hazardous gas; sometimes found inside homes
Real Estate Agent - a qualified person that assists in the negotiation and sale of property
Realtor - a real estate broker or agency that is an active member of the National Association of Realtors
Refinancing - acquiring a new mortgage loan that has better terms (such as lower interest rate) than the existing one; the old loan is paid off my the new loan
Settlement - the property is legally transferred from the seller to the buyer; same as closing
Special Forbearance - one choice of a loss mitigation which the lender revises monthly mortgage loan repayments by temporarily reducing or suspending the monthly installments, or taking a similar action
Subordinate - as it relates to mortgage loans, to categorize one claim as less important than the other claim<
Survey - a drawing that shows the exact legal location of boundaries, easements, rights of ways and other physical features of a property
Sweat Equity - providing labor to construct or rehabilitate property in lieu of cash
Title 1 - a FHA program for lenders that insures loans that are used for essential improvements of a property; there are maximum loan amounts and terms based on the type of structure
Title Insurance - insurance for lenders or buyers that protects against loss due to ownership disputes<
Title Search - investigating public records for the history of ownership of the property and of unsettled liens and claims on the property
Truth-in-Lending Act (TILA) - a federal law requiring the lender to provide all the terms, conditions, and fees related to a loan, including the APR, to the borrower.
Underwriting - the process that the lender uses to evaluate the loan application to determine if the loan is approved
VA (Veterans Administration) Loan - a long term or low down payment loan provided by the VA to individuals that served in the military; the VA insures mortgage lenders against losses that may incur from a borrower defaulting on a loan