Mortgage Glossary



1003 Uniform Residential Loan Application.

A & D LOAN is an Acquisition and Development Loan: a loan for the purchase of raw land for the purpose of development/building on it..

Abstract Title is a history of the ownership of a parcel of land.

Acceleration Clause is a Clause that  allows the lender to speed up/accelerate the rate at which your loan comes due and payable.  The lender can demand immediate payment of the full balance of the loan should you default on your loan.

Acknowledgment A declaration by a Notary Public the identity of the signer.

Adjustable Rate Mortgage (ARM) Is a mortgage in which the interest rate is fixed for a shorter period of time (3, 5, 7 or 10 years) and becomes subject to adjustments after that period (usually once or twice per year) depending on a pre-selected index. 

Adjustment Interval On an adjustable rate mortgage, the time between changes in the interest rate and/or monthly payment, typically once or twice per year, depending on the index.

Affidavit A sworn statement in writing.

American Land Title Association (ALTA) An organization of title companies specializing in Real Property Law which has standardized forms and coverage on a national basis.

Amortized / Amortization Amortization equals to the principal portion of the loan payment and is the loan re-payment in form of equal periodic payments calculated to pay off the debt at the end of a the loan term and it includes accrued interest on the outstanding balance. 

Annual Percentage Rate (APR) is the interest rate that reflects the cost of a mortgage as an annual rate. This rate is most likely to be higher than the Note rate on the mortgage, because it takes into account points and other credit costs. Disclosing the APR allows homebuyers to compare different types of mortgage loans based on their annual cost respectively.

Appraisal A professionally prepared estimate of the value of real property, made by a qualified professional called an “appraiser.” An appraisal is required on most real estate finance transactions to determine the value off the subject property.

Assumption is an agreement between a buyer and a seller where the buyer takes over the payments on an existing mortgage from the seller. This has to be approved by the lender holding the Note and be allowed by the Note, which was originally signed by the seller, when they purchased the subject property.


Back End Ratio is  the debt-to-income ratio calculated using principal, interest, taxes, insurance and the Borrower’s other credit obligations divided by gross monthly income. It is expressed as a percentage of the Borrower’s income.

Balloon is a short-term fixed-rate loan which involves payments for a certain shorter period of time and one large payment that includes the remaining amount of the principal at a time specified in the loan Note.

Beneficiary is the entity that is funding the loan and to which the loan balance is owed.

BK / Bankruptcy is a legal proceeding that initiates a reorganization or discharge of debts, when a person or an entity can not repay outstanding debts or obligationsCould also be referred to as Chapter 7, 11 or 13.

Broker  is an individual or a business assisting clients in sourcing the best financing options and negotiating for a client but who does not loan the money himself. Brokers usually receive a commission for their services.

Buy Down Option is offered when the lender and/or the home builder subsidizes the mortgage by lowering the interest rate during the first few years of the loan. The payments are initially lower and increase when the Buy-Down period expires.


Cap Rate is the highest rate that an adjustable rate mortgage may reach. It can be expressed as the actual rate or as the amount of change allowed above the start rate. For example, a 7.99 % start rate with a 6% rate change cap would have a maximum interest rate cap of 13.99%.

Cash Out Refinance is a mortgage transaction that permits funds distribution to the Borrower and coming from the home equity. The cash-out amount becomes a part of the newly assumed loan.

Certificate of Occupancy A certificate that is issued by the local city government to a builder and that states that the building is in an acceptable condition to be occupied.

Certified Copy is a true copy, attested to be true by the officer holding the original. It is expected to have a stamp and signature of the officer stating that it is a true copy.

Clear-to-close  is issued when a loan is ready to be closed with no additional conditions.

Closing the act of  meeting between the buyer, seller and lender or their agents and signing the legal documents that facilitate the property transfer in the name of the Purchaser and the funds legally be distributed to the Seller. Closing is also called a settlement.

Closing Costs are costs of transfer of ownership of a property from the Seller to the Purchaser and usually include an origination fee, discount points, appraisal fee, title search and insurance, survey, taxes, deed recording fee, credit report charge and other costs assessed at settlement. The costs of closing can range from 3 percent to 6 percent of the total mortgage amount, depending of the size of the loan. 

Commitment is an agreement, often issued in writing by a lender to a borrower to lend an amount of money at a future date and subject to the completion of paperwork or compliance with stated conditions.

Community Property is a property owned in common by a husband and wife, which was not acquired as separate property. This is a lassification of property ownership that is specific to certain States. In community property states – an assets may be owned in part by a spouse even if their name is not on the title.

Comp. / Comparable is a property with the same basic characteristics as the property that it is compared to (usually the subject property on a real estate appraisal.) It should have been sold recently and be in as close proximity to the subject property, as possible.

Condominium  is a property owned as a unit in a building or group of similar units – with rights to occupy specific units of the structure. Condominiums are usually governed by an overseeing board, often referred to as a Homeowners Association/Condo Association.

Construction Loan is usually a short term interim loan for financing the cost of building a property or construction period. Upon approval of a construction loan, the lender advances funds to the builder during periodic intervals as the building of the subject property progresses.

Consumer Credit  is credit owed by an individual and not secured by real estate.

Conventional Loan is a mortgage loan that is not insured by FHA or guaranteed by the VA. 

Conversion Clause is a provision in some ARM Programs (Adjustable Rate Mortgage) that permits a change of an ARM to a fixed-rate loan at some point during the loan term.

Credit Ratio is the ratio, expressed as a percentage, that is arrived at – when a borrower’s monthly payment obligation on long-term debts is divided by his or her gross monthly income.

Credit Report is a history of a Borrower’s debt payments.

Credit Score is the score generated by credit reporting agencies to an individual and which determine the credit worthiness. These scores come from Experian, Equifax and Trans Union.


D.R. / Debt Ratio is the Borrower’s total monthly obligations divided by their monthly gross income.

Deed is a legal document which conveys the title to a property.

Deed of Trust is a legal document that pledges real property to secure a debt.

Default is a failure to meet legal obligations in a contract. This particularly pertains to making the monthly payments on a mortgage.

Deferred Interest See Negative Amortization

Delinquency is a failure to make debt payments on time. If this happens with a mortgage debt, it can lead to foreclosure.

Department of Veterans Affairs (VA) is an independent Agency of the federal government which guarantees mortgages to eligible veterans.

Derogatory Letter is a letter written by the Borrower in which an explanation for any derogatory credit is presented.

Discharge is a status resulting in a completed bankruptcy proceeding. Any debts that are discharged are no longer owed or collectable. During a loan approval process – lenders request copies of any applicable discharge papers on any prior bankruptcy filings.

Discount Points are cost of obtaining an interest rate assessed by the lender and paid at closing. Each point is equal to 1 percent of the loan amount (e.g. two points on a $100,000 mortgage would cost $2,000).

Dismissal is a status of a bankruptcy proceeding that is a result of it being dropped without being completed. During a loan approval process lender will ask for the Bankruptcy Dismissal document in order to proceed with the loan (when Borrowers have a history of Bankruptcy Dismissal(s). Either the court or the debtor can prompt the dismissal.

Down Payment is the amount of money paid to make up the difference between the purchase price and mortgage amount. Down payment amounts can range from 0% on FHA and VA loans to a minimum of 3% of the sales price on Conventional loans. The percentage can be higher and if the minimum down payment of 20% or more is expedited, the Mortgage Insurance (Conventional Loans) on the new mortgage payment might avoided.

Due-On-Sale Clause is a provision in a mortgage or Deed of Trust that permits the lender to request immediate payment of any outstanding mortgage balance when the mortgage holder sells the home.


Earnest Money is the amount of money deposited in an escrow account (usually with the title company of choice) by a buyer for the benefit of a seller as percentage (usually 1%) of the purchase price to bind a purchase transaction and express a serious intention to buy a property.

Easements represent an interest in a property that is owned by another person or entity and that entitles the holder of the easement to a specific limited use or privilege of access (an example of an easement is the right to cross a property or to build structures on the property).

Encroachment is a fixture or a piece of property that intrudes on another owner’s property.

Equal Credit Opportunity Act (ECOA) Is a federal law that requires lenders and other creditors to make credit equally available without discrimination based on race, color, religion, national origin, age, sex, marital status or receipt of income from public assistance programs.

Equity is the difference between the fair market value of a real property and any outstanding mortgage loan on the subject property. A different way to describe equity is the “owner’s interest”.

Escrow Waiver is an option available to a borrower to pay their own taxes and insurance outside of the monthly mortgage payment. Escrow wavers are usually granted with a 20% or higher equity position. However, some lenders permit this percentage to be lower than 20%.

Escrow is a definition for an independent third party who handles the paperwork per the instructions of both the buyer and seller and expedites the settlement or “closing.” Escrow may also refer to an account established and held by the lender or a title company into which the homebuyer pays money for tax or insurance or other  payments during a home purchase transaction.


Farmers Home Administration (FMHA) is a former US Department of Agriculture (USDA) that is created to help home financing and insuring the loans to farmers and their families.

Federal Home Loan Mortgage Corporation (FHLMC) Also called Freddie Mac, is a government-sponsored entity that purchases conventional mortgages from insured depository institutions and HUD-approved mortgage bankers and packages these mortgages into mortgage-backed securities and sells them in the open market.

Federal Housing Administration (FHA) is a division of the Department of Housing and Urban Development that has its main role in the insuring of residential mortgage loans made by FHA-approved lenders. FHA also sets standard and creates guidelines for underwriting FHA-insured mortgages.

Federal National Mortgage Association (FNMA) is also known as Fannie Mae. is a tax-paying corporation created by Congress and sponsored by the US Government. Fannie Mae also purchases mortgages issued by private lenders and places them on the open market in form of mortgage backed securities. Fannie Mae provides funds for one in seven mortgages, which helps lenders to free their lines of credit to lend more to Borrowers. 

Fee Simple is the most common type of ownership where the persone with vested interest owns both – the land and the structures.

FHA Loan is a loan that is insured by the Federal Housing Administration and available to all qualified home buyers. Allthough, there are limits to the size of FHA loans, they are high enough to accommodate moderately priced homes nationwide.

FHA Mortgage Insurance Requires a small fee (up to 3 percent of the loan amount) paid at closing or a portion of this fee added to each monthly payment of an FHA loan to insure the loan with FHA. On a 9.5 percent $75,000 30-year fixed-rate FHA loan, this fee would amount to either $2,250 at closing or an extra $31 a month for the life of the loan. In addition, FHA mortgage insurance requires an annual fee of 0.5 percent of the current loan amount.

Fixed-Rate Mortgage is a  mortgage that comes with the interest rate that is fixed for the term of the loan.

Flood Insurance is a type of insurance that is required for some homeowners whose property is built in a designated flood zone.

Foreclosure is a legal procedure in which a property that is a collateral on the mortgage loan has to be sold by the lender in order to pay a defaulting borrower’s debt.

Free and Clear – means that the subject the property is paid in full and has no mortgages or liens attached.

Functional Obsolescence is a reduction from the property’s value and usefullness due to the outsated design or material being less functional or desirable than the current norm.


GFE Good Faith Estimate of Buyers Loan Charges.

Government National Mortgage Association (GNMA) that is also known as Ginnie Mae, provides sources of funds for residential mortgages, insured or guaranteed by FHA or VA.Ginnie Mae also guarantees the timely payment of principal and interest on the so-called Mortgage Backed Securities.

Graduated Payment Mortgage (GPM) is a type of flexible-payment mortgage where the payments increase for a specified period of time and then level off. This type of mortgage has negative amortization built into it.

Grant Deed also known as Special or Limited Warranty Deed is the most common form of title transfer between the previous and the new owner. A Grant Deed warrants that there are no prior conveyances or encumbrances on the property and that the previous owner did not grant the property to anyone else.

Gross Monthly Income is the total amount the borrower earns per month, prior to income tax or any expenses are deducted.

Guarantee  is a promise given by one party to pay a debt or perform an obligation contracted by another,  if the original party does not perform according to a contract.


Hazard Insurance is a form of property insurance in which the insurance company protects the insured from specified losses, such as fire, windstorm and the like. Hazard Insurance does not cover earthquake, riot, or flood damage.

Homestead is the house and contiguous land of the head of the family. Certain States permit statutory exemptions that protect homestead property (up to a certain maximum amount) against the rights of the creditors. Some States also allow for property tax exemptions.

Housing Expenses-to-Income Ratio is the ratio, expressed as a percentage arrived at, when a borrower’s housing expenses are divided by his/her net effective income (FHA/VA loans) or gross monthly income.


Impounds are the portion of a borrower’s monthly mortgage payments that are held by the lender or servicer to pay for taxes, hazard insurance, mortgage insurance, lease payments, and other items as they become due. Impounds are also known as reserves.

Index is a published interest rate against which lenders measure the difference between the current interest rate on an adjustable rate mortgage and the interest rate that is earned by other investments (such as one- three-, and five-year U.S. Treasury Security yields)

Investor are individuals and institutions that can be source of funds for a lender.


Joint Tenants is a  form of property ownership/holding title where the owners have 100% rights of survivorship unless specific instruction are listed in a will.

Jumbo Loan is a type of loan which is higher than the limits set by the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation (above the so-called High Balance Loan limits). Since jumbo loans cannot be funded by these two Agencies, they usually are available with a higher interest rate than it would be on Conforming Loan amounts.


Land Contract is an agreement between the seller and the buyer that is specific to a particular piece of land. Land Contracts can be broad in nature and include real property on land as well. Land Contract frequently include a Seller-Financing option.

Leasehold Estate is  kind of real estate contract where the lessor does not hold title to the property but is granted the right use of the property subject to the terms of the lease.

Legal Description is a unique method o describing a property’s geographic location as piece or parcel of land, which is acceptable in a court of law.A unique and accurate legal description is very important in the process of property ownership transfer and in order to have a valid mortgage.

LIBOR is the London InterBank Offered Rate. LIBOR represents the base interest rate paid on deposits between banks in the Eurodollar market.

Lien is a claim placed on a piece of property in order to facilitate the payment or satisfaction of any debt or obligation to a person or a business entity.

Loan Committee Generally the Committee that performs a Loan Underwriting process.

Loan Risk is the rate level of risk that is assigned to the loan and that estimates the probable risk of delinquency and a possible loss on the underlying loan in the future.

Loan-To-Value Ratio (LTV) is the relationship between the amount of the mortgage loan and the appraised value of the property expressed as a percentage.


Negative Amortization – Amortization of a loan exists when monthly payments are large enough to pay the interest and reduce the principal on a mortgage. Negative amortization takes place when the monthly payments are not sufficient cover all of the interest cost. The interest cost that isn’t covered is added to the unpaid principal balance. This means that even after making many payments, a borrower may owe more than was owed at the beginning of the loan.

Net Effective Income The borrower’s gross income minus federal income tax.

Non-Assumption Clause is a statement in the Mortgage Note restricting the assumption of the mortgage unless approved by the lender.

Non-Owner Occupied is a property that is not used as a primary residence by the owner of the property.

Notary Public is a person, designated by the State who has the authority to verify and certify the identity of a person when signing various documents.

Note is a short name for Promissory Note. Note is the document that gives the terms of the loan and legally obligates the borrower to pay back the debt.


Negative Amortization – Amortization of a loan exists when monthly payments are large enough to pay the interest and reduce the principal on a mortgage. Negative amortization takes place when the monthly payments are not sufficient cover all of the interest cost. The interest cost that isn’t covered is added to the unpaid principal balance. This means that even after making many payments, a borrower may owe more than was owed at the beginning of the loan.

Net Effective Income The borrower’s gross income minus federal income tax.

Non-Assumption Clause is a statement in the Mortgage Note restricting the assumption of the mortgage unless approved by the lender.

Non-Owner Occupied is a property that is not used as a primary residence by the owner of the property.

Notary Public is a person, designated by the State who has the authority to verify and certify the identity of a person when signing various documents.

Note is a short name for Promissory Note. Note is the document that gives the terms of the loan and legally obligates the borrower to pay back the debt.


Obligations are debts or recurring payments the borrower is obligated to pay, which includes mortgage payments, credit cards, installment loans (car loans), student loans, etc.

Origination Fee is the fee usually charged by a lender or a Mortgage Broker and it can include administrative costs of a loan approval or cost of a certain interest rate. Origination Fee is computed as a percentage of the face value of the loan.

Owner Occupied is the expressed as intention of the home owner to use a property as their primary residence.

Owners Policy is the title insurance policy which protects the buyer against financial loss that could be presented by deficiencies with the title.


P & I Principal and Interest. This refers to the principal and interest portions of the monthly mortgage payment.

P & L / Profit and Loss is a statement that reflects a business’ gross income, any cost of goods, operating costs and the resulting net profit or loss.

P.I.T.I. Principal, interest, taxes and insurance which equals to a complete monthly payment associated with financing a property.

P.U.D. Planned Unit Development. Property owned as a group, where individuals own the specific piece of land and structure they occupy, but also have a divided interest in a common area. A board, often referred to as a Homeowners Association, will govern the development.

Piggy Back Loan is financing obtained as a subordinate to the first mortgage, to facilitate closing the first mortgage. Also known as a Secondary Financing.

Points A point is equal to one percent of the principal amount of a mortgage, see also Discount Points.

Power of Attorney An authority by which one person enables another to act on his or her behalf. Power of attorney can be limited to specific areas or be general. POA used in the real estate transaction has to be a Specific POA.

Pre-Approval is a Letter issued by a financial institution that confirms that a Borrower has actually started the application process and an underwriter has approved their income, assets and credit. 

Prelim. / Preliminary Title Report is the title report generated in the beginning of the loan application process. It presents to the mortgage company what liens are on the property and gives advice as to what will need to be done to gain clear title prior to recording the Deed of Trust.

Prepaid Interest The portion of interest, collected at loan closing, which covers the time period between funding and the beginning of the first 30-day period covered by the first payment. For example, if the loan closed on 2/15, the first payment due on 4/1 would pay interest from 3/1 to 4/1. The prepaid interest would cover the period from 2/15 to 2/28.

Prepaids Expenses necessary to create an escrow account or to adjust the seller’s existing escrow account. Prepaids can include interim interest, real estate taxes, hazard insurance, private mortgage insurance and special assessments.

Prepayment Penalty Money charged for an early repayment of a loan. Prepayment penalties are not permited on Fannie Mae, Freddie Mac, VA and FHA loans, while they are acceptable on the so called- Non-Qualifying Mortgages.

Prepayment is a privilege in a mortgage permitting the borrower to make payments in advance of their due date.

Pre-Qualified Buyer has discussed their financial situation with a loan expert. No attempt has been made to verify the validity of any of the borrowers information. 

Principal The amount of debt, not counting interest, left on a loan.

Private Mortgage Insurance (PMI) In the event that you do not have a 20 percent down payments, lenders will allow a smaller down payment, as low as 3 percent in some cases. With the smaller down payments loans, however, borrowers are usually required to carry private mortgage insurance. 

Purchase Agreement is the agreement made between the buyer and seller of a property, containing the purchase price and other terms and contingencies of the sale.


Quit Claim is a deed operating as a release of ownership rights and is intended to pass any title, interest or claim, which the grantor may have in the property, but not containing any warranty of a valid interest or title in the grantor.


Rate Float Assuming market risk on an interest rate in the hopes that it will go lower prior to closing.

Rate Lock is securing to have no change to a rate for a specific length of time (30, 45 or 60 days rate locks are customary in the mortgage business).

Ratios How a buyers housing expense and debt picture relates to their income.

Real Estate Settlement Procedures Act (RESPA) RESPA is a federal law that allows consumers to review information on known or estimated settlement costs once after application and once prior to or at settlement. The law requires lenders to furnish information after application only.

Realtor is a licensed real estate broker or a sales associate holding active membership in a local real estate board affiliated with the National Association of Realtors.

Rescission is the cancellation of a contract. With respect to mortgage refinancing, the law that gives the homeowner three days to cancel a contract in some cases once it is signed if the transaction uses equity in the home as security (primary residence refinance transactions).

Recon / Reconveyance is a release of lien filed with the county recorder by the trustee.

Recording Fees are fees paid to the lender for recording a home sale with the local authorities, thereby making it part of the public records.

Request for Reconveyance Verification given by the beneficiary to the trustee that the conditions of the lien have been fulfilled and request that the lien be canceled.

Reverse Annuity Mortgage (RAM) is a form of mortgage in which the lender makes periodic payments to the borrower using the borrower’s equity in the home as security.


S.I. / Statement of Information is the form the customer fills out for the title company giving further identification of the customer. This allows the title company to eliminate debts and liens owed by people with similar names.

Second Mortgage is a  mortgage that is entered after the primary loan. It is named a second due to it being in second lien position to the first mortgage. See also Secondary Financing.

Secondary Financing Financing obtained, subordinate to the first mortgage, to facilitate closing the first mortgage. Also known as a “piggyback” loan.

Servicing of a loan is all the steps and operations a lender perform to keep a loan in good standing, such as collection of payments, payment of taxes, insurance, property inspections and the like.

Settlement Costs See Closing Costs.

Settlement See Closing.

Submission of a loan refers to a complete loan application package submitted for a full approval to the lender’s underwriting department.

Subordination Agreement is the agreement detailing the contingencies of subordination, filed with the county recorder. If a lien holder agrees to accept a lien position after that of a later recorded lien.

Surety Bond is a bond which insures against harm to a party (usually the lender or owner) by a lien still attached to the property. This is usually used when the original deed was lost or the beneficiary cannot be located.

Survey is a measurement of land prepared by a registered land surveyor showing the location of the land with reference to known points, its dimensions, and the location and dimensions of any building.

Suspended a loan can be suspended, when the underwriter cannot yet approve or deny the loan. They need more information in order to make a final decision on the loan.


Tenants in Common is a percentage interest in a property by two or more individuals without rights of survivorship.

Title Insurance The insurance policy protects the lender and/or the buyer from paying legal fees in case that the new liens appear than is stated in the title report. 

Title Search is an examination of municipal records to determine the legal ownership of property. Title search is usually performed by a title company.

Title is a document that provides evidence of an individual’s ownership of property


Underwriting is the loan review and approval decision to be made on a loan to a potential homebuyers based on credit, employment, assets, and other factors and the matching of this risk to an appropriate rate and term or loan amount.



VA Loan is a long-term and usually with zero down payment loan guaranteed by the Department of Veterans Affairs. VA loans are usually available to individuals qualified by military service or other entitlements.

VA Mortgage Funding Fee A premium of up to 2 percent (depending on the size of the down payment) paid on a VA-backed loan. On a $75,000, 30-year fixed-rate mortgage with no down payment, this would amount to $1,406 either paid at closing or added to the amount financed.

Variable Rate Mortgage (VRM) See Adjustable Rate Mortgage.

Verification of Deposit (VOD) is a document signed by the borrower’s financial institution verifying the status and balance of his/her financial accounts.

Verification of Employment (VOE) is a document signed by the borrower’s employer verifying his/her position and salary.


Zoning is the division of a city or county into areas (zones) that specify the uses allowable for the real property in these areas.