Mortgage & Real Estate Glossary

Essential mortgage and real estate terms explained

A

Acceleration Clause
Loan provision allowing lender to demand full repayment if borrower defaults.
Related: Default, Foreclosure, Mortgage Note
Adjustable-Rate Mortgage (ARM)
Home loan with interest rate that changes after initial fixed period based on financial index.
Related: Fixed-Rate Mortgage, Index, Margin
Amortization
Gradual repayment of principal and interest over time until loan is paid in full.
Related: Principal, Interest, Term
Annual Percentage Rate (APR)
Annualized total cost of borrowing including interest, fees, and points.
Related: Interest Rate, Points, Closing Costs
Appraisal
Licensed appraiser’s estimate of property value used to determine loan eligibility.
Related: Market Value, LTV
Assumable Mortgage
Loan transferable to new buyer under existing terms with lender approval.
Related: Due-on-Sale Clause, FHA Loan

B

Balloon Payment
Loan with small regular payments and one large final payment.
Related: Interest-Only Loan
Basis Point
One-hundredth of a percentage point (0.01%).
Related: Interest Rate, APR
Bridge Loan
Short-term financing between buying new home and selling old one.
Related: Equity
Buydown
Paying extra points upfront to reduce interest rate temporarily or permanently.
Related: Discount Points, APR

C

Cash-Out Refinance
Refinance loan exceeding old balance, allowing borrower to take cash equity.
Related: Home Equity, LTV, Refinance
Clear to Close
Final approval status indicating loan can proceed to closing.
Related: Closing, Underwriting
Closing
Final transaction meeting where ownership transfers and funds disbursed.
Related: Closing Costs
Closing Costs
Combined fees at settlement: lender fees, title insurance, appraisal, taxes.
Related: Escrow, Title Insurance
Closing Disclosure
Five-page form detailing final loan terms and costs.
Related: Loan Estimate, TRID
Collateral
Asset pledged as security for repayment, typically the property.
Related: Lien, Deed of Trust
Comparable Sales (Comps)
Recently sold properties used to determine market value.
Related: Appraisal, Market Value
Conforming Loan
Mortgage meeting Fannie Mae and Freddie Mac guidelines.
Related: Jumbo Loan, GSE
Conventional Loan
Non-government-insured mortgage requiring higher credit and down payment.
Related: FHA Loan, VA Loan, PMI
Credit Score
Financial history record from bureaus used for underwriting.
Related: FICO, Underwriting, DTI

D

Debt-to-Income Ratio (DTI)
Total monthly debts divided by gross monthly income.
Related: LTV, Underwriting
Deed of Trust
Legal document securing property title as loan collateral.
Related: Mortgage, Trustee
Default
Failure to meet repayment obligations under loan agreement.
Related: Foreclosure
Discount Points
Upfront fees paid to reduce loan interest rate.
Related: APR, Origination Fee
Down Payment
Buyer’s contribution toward purchase price; affects LTV and PMI.
Related: Equity, PMI

E

Earnest Money
Buyer’s good-faith deposit showing intent to purchase.
Related: Escrow, Purchase Agreement
Equity
Portion of home value owned outright (value minus loan balance).
Related: Appreciation, Cash-Out Refinance
Escrow Account
Lender-held account for property taxes and insurance payments.
Related: PITI, Impounds

F

Fannie Mae (FNMA)
Government-sponsored enterprise purchasing mortgages.
Related: Freddie Mac, Secondary Market
FHA Loan
Mortgage insured by Federal Housing Administration allowing low down payments.
Related: MIP
FICO Score
Credit scoring model ranging 300-850 used by lenders.
Related: Credit Score, Underwriting
Fixed-Rate Mortgage
Mortgage with interest rate that remains constant for loan term.
Related: ARM, Rate Lock
Foreclosure
Lender’s legal action to repossess property due to default.
Related: Default, REO
Freddie Mac (FHLMC)
GSE similar to Fannie Mae; purchases and securitizes mortgages.
Related: Conforming Loan

G

Gift Letter
Document stating funds given for down payment are gift, not loan.
Related: Down Payment
Good Faith Estimate
Historic disclosure replaced by Loan Estimate.
Related: Loan Estimate
Grace Period
Time allowed after due date before late fees accrue.
Related: Late Payment

H

Hazard Insurance
Policy covering property damage from fire, wind, or perils.
Related: Homeowners Insurance, Escrow
HELOC
Home Equity Line of Credit – revolving credit secured by equity.
Related: Second Mortgage, Cash-Out Refinance
Home Inspection
Examination of property’s physical condition before purchase.
Related: Contingency, Purchase Agreement
HOA
Homeowners Association managing common areas and rules.
Related: DTI, Monthly Payment

I

Impounds
Funds collected monthly for escrowed taxes and insurance.
Related: Escrow Account, PITI
Index
Benchmark rate determining ARM interest rate changes.
Related: Margin, ARM
Interest
Cost of borrowing money as percentage of principal.
Related: APR, Principal
Interest-Only Loan
Loan where borrower pays only interest initially.
Related: Balloon Loan, ARM

J

Jumbo Loan
Non-conforming loan exceeding federal limits for high-value homes.
Related: Conforming Loan

L

Late Charge
Fee assessed when payment received after grace period.
Related: Grace Period
Lien
Legal claim against property securing debt repayment.
Related: Title
Loan Estimate
Disclosure form detailing estimated loan terms and costs.
Related: Closing Disclosure, TRID
Loan-to-Value (LTV)
Mortgage amount divided by property value.
Related: PMI, DTI, Equity
Lock-In
Agreement fixing interest rate for specific time before closing.
Related: Rate Lock

M

Margin
Fixed percentage added to index to set ARM rates.
Related: Index, ARM
Market Value
Estimated price property would fetch under normal conditions.
Related: Appraisal, LTV
MIP
Mortgage Insurance Premium required for FHA loans.
Related: FHA Loan
Mortgage
Legal agreement securing loan repayment through property lien.
Related: Note, Deed of Trust
Mortgage Note
Borrower’s signed promise to repay principal and interest.
Related: Mortgage

N

NMLS
Nationwide Multistate Licensing System for loan originators.
Related: Loan Originator
Non-Conforming Loan
Mortgage exceeding GSE limits or not meeting criteria.
Related: Jumbo Loan

O

Origination Fee
Lender charge for processing loan, usually 0.5-1%.
Related: Points, Underwriting

P

PITI
Principal, Interest, Taxes, and Insurance – mortgage payment components.
Related: Escrow
Points
Upfront fees (1 point = 1% of loan) to lower interest rate.
Related: APR, Discount Points
Pre-Approval
Lender’s verification of borrower qualification before shopping.
Related: Underwriting
Prepayment Penalty
Fee charged for paying off loan early.
Related: Note Terms
Principal
Original borrowed amount excluding interest or fees.
Related: Amortization, Interest
PMI
Private Mortgage Insurance protecting lender when LTV exceeds 80%.
Related: LTV, Conventional Loan

Q

Qualifying Ratios
Percentages comparing expenses and debt to income.
Related: DTI, Housing Ratio

R

Rate Cap
Maximum interest rate increase per adjustment or lifetime.
Related: ARM
Rate Lock
Commitment fixing rate for set period.
Related: Lock-In
Refinance
Replacing existing mortgage with new one.
Related: Cash-Out Refinance, APR
Reverse Mortgage
Loan for seniors converting equity to cash.
Related: Equity

S

Second Mortgage
Additional loan subordinate to primary lien.
Related: HELOC, Equity
Secondary Market
Market where loans are sold to investors.
Related: Fannie Mae, Freddie Mac
Short Sale
Sale for less than owed balance with lender approval.
Related: Foreclosure, Default

T

Term
Agreed period (e.g., 15 or 30 years) for repayment.
Related: Amortization
Title
Legal ownership record of property.
Related: Deed, Title Insurance
Title Insurance
Protection from losses due to title defects or liens.
Related: Title Search
TRID
TILA-RESPA Integrated Disclosure rule for cost disclosures.
Related: Loan Estimate

U

Underwriting
Process where lender assesses risk and verifies information.
Related: DTI, LTV, Appraisal
USDA Loan
Government-backed loan for rural borrowers with zero down.
Related: FHA Loan, VA Loan

V

VA Loan
Zero-down mortgage for eligible veterans and service members.
Related: VA Funding Fee
VA Funding Fee
One-time fee supporting VA program (0.5-3.3%).
Related: VA Loan

W-Z

Walk-Through
Final inspection before closing.
Related: Closing
Yield Spread Premium
Broker compensation for higher-rate loan.
Related: Broker Fee
Zero-Down Loan
Mortgage requiring no down payment.
Related: VA Loan, USDA Loan