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Glossary of Mortgage Words

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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

Credit History - an account of the borrower’s past and present debts

Credit Report - a credit history plus a record of whether or not the borrower paid their debts on time

Credit Bureau Score - a grade determined by the credit bureau based on the credit report; used by lenders to determine if the borrower is a credit risk

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

Fixed-Rate Mortgage - monthly mortgage loan in which the installments are the same each month

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

Mortgage Insurance Premium (MIP) - the cost of the mortgage insurance which is included as part of the mortgage payment

Mortgage Modification - one choice of a loss mitigation which permits the borrower to refinance and / or extend the ending date of the mortgage loan thereby reducing the monthly installments<

Offer - the potential buyer’s amount, put in writing, of what their willing to pay for the property

Origination - the lender’s preparation of the loan documents including making credit checks, verifying financial status and appraising the property

Origination fee - the fee charged by a lender for the preparation of the loan documents; the fee is a percentage of the property value and is paid at closing

Partial Claim - one choice of a loss mitigation which permits the borrower to obtain a FHA interest free loan in order to make the borrower’s mortgage payments current

PITI - abbreviation for principal, interest, taxes, and insurance; the total amount for these four items make up the monthly mortgage installments

Pre-Approve - based on the review of the loan application, the lender approves the loan; the potential borrower must meet the qualifications when the property is actually purchased

Pre-Foreclosure Sale - the borrower who defaults on the loan, sells the property to pay the loan in order to prevent foreclosure

Pre-Qualify - based on the review of the loan application, the lender unofficially states the maximum amount of money that can be borrowed

Premium - the fee for the insurance

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

Rehabilitation Mortgage - a loan used to purchase and renovate a property

RESPA (Real Estate Settlement Procedures Act) - a federal law requiring the lender to provide all known settlement costs to the borrower after the lender receives the application

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

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