MORTGAGE TERM GLOSSARY
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Adjustable Rate Mortgage (ARM): A
mortgage in which the interest rate is
adjusted periodically according to a pre-
selected index.
Annual Percentage Rate (APR): A term
used in the Truth-in-Lending Act to
represent the percentage relationship of
the total finance charge to the amount of
the loan. The APR reflects the cost of your
mortgage loan as a yearly rate. It will be
higher than the interest rate stated on the
note because it includes, in addition to the
interest rate, loan discount points, fees and
mortgage insurance.
Application: A printed form used by a mortgage lender to record necessary
information concerning a prospective client.
Appraisal: A report made by a qualified person setting forth an opinion or estimate of
property value. The term also refers to the process by which this estimate is obtained.
Assessed Valuation: The value that a taxing authority places on real or personal
property for the purpose of taxation.
Assessment: A charge against a property for the purpose of taxation. This may take
the form of a levy for a special purpose or a tax in which the property owner pays a
share in the cost of community improvements according to the valuation of his or her
property.
Borrower: A person (also known as a mortgagor) who receives funds in the form of a
loan with an obligation to repay principal with interest.
Buydown: Money advanced by an individual (builder, seller, etc) to reduce monthly
payments for a home mortgage either during the entire term or for an initial period of
years.
Cash to Close: Liquid assets that are readily available to be used to pay the closing
costs involved in a closing of a mortgage transaction.
Closing: The consummation of a real estate transaction. The closing includes the
delivery of a deed, financial adjustments, the signing of notes, and the disbursement of
funds necessary to complete the sale and loan transaction.
Closing Costs: Money paid by the borrower in connection with the closing of a
mortgage loan. This generally involves an origination fee, discount points, appraisal,
credit report, title insurance, attorney’s fees, survey, and pre-paid items such as tax and
insurance escrow payments.
Closing Statement: A form used at closing that gives an account of the funds received
and paid at the closing, including the escrow deposits for taxes, hazard insurance, and
mortgage insurance.
Co-borrower: Additional borrowers whose income contributes to qualifying for a loan
and whose name appears on documents with equal legal obligations.
Collateral: Property pledged as security for a debt, such as the real estate pledged as
security for a mortgage.
Commitment (loan): A formal offer by a lender stating the terms under which it agrees
to loan money to a homebuyer.
Conforming Loan: Conventional home mortgages eligible for sale and delivery to
either the Federal National Mortgage Association (Fannie Mae) or the Federal Home
Loan Mortgage Corporation (Freddie Mac). These agencies generally purchase first
mortgages up to loan amounts mandated by Congressional directive.
Conventional Mortgage: A mortgage not obtained under a government insured
program (such as FHA or VA).
Deed of Trust: An instrument used in many states in place of a mortgage. Property is
transferred to a trustee by the borrower (trustor), in favor of the lender (beneficiary)
and reconveyed upon payment in full.
Default: The failure to perform an obligation as agreed in a contract.
Delinquency: A loan payment that is overdue buy within the period allowed before
actual default is declared.
Deposit: A sum of money given to bind a sale of real estate. Also known as earnest
money.
Depreciation: A loss of value in real property brought about by age, physical
deterioration, functional or economic obsolescence.
Discount Point: Amount payable to the lender institution by the borrower or seller to
increase the lender’s effective yield. One point is equal to one percent of the loan
amount.
Discounted Loan: When the note rate on a loan is less than the market rate, the lender
requires additional points to raise the yield on the loan to the market rate.
Earnest Money: A portion of the down payment delivered with a a purchase offer by
the purchaser of real estate to the seller or an escrow agency by the purchaser of real
estate with a purchase offer as evidence of good faith. Also known as a deposit.
Equal Credit Opportunity Act (ECOA): A Federal law requiring lenders and other
creditors to make credit equally available without discrimination based on race, color,
religion, national origin, sex, age, marital status, receipt of income from public
assistance programs or past exercising of rights under the Consumer Credit Protection
Act.
Equity: The ownership interest, i.e. portion of a property’s value over and above the
liens against it.
Escrow: A procedure whereby a disinterested third party handles legal documents and
funds on behalf of a seller and buyer.
Fair Credit Reporting Act FCRA: A Federal law, which requires a lender who is
rejecting information. This law also requires consumer-reporting agencies to exercise
fairness, confidentiality, and accuracy in preparing and disclosing credit information.
First Mortgage: A real estate loan, which has priority over any subsequently recorded
mortgages, which does not change during the loan term.
Foreclosure: A legal procedure in which property mortgaged as security for a loan is
sold to pay the defaulting borrower’s debt.
Gift Letter: A written explanation signed by the individual giving the gift stating, “this is
a bona fide gift and there is no obligation expressed or implied to repay this sum at any
time.
Gross Monthly Income: Total monthly income earned before tax and other
deductions.
Hazard Insurance: A contract whereby an insurer, for a premium, undertakes to
compensate the insured for loss on a specific property due to certain hazards (i.e. fire).
High-Ratio Loan: Mortgage loans in excess of 80 percent of the loan amount divided
by the lower of the sales price or appraised value.
Homeowner’s Association Dues: The fees imposed by a condominium or
homeowners association for maintenance of common areas.
Interest Rate: The percentage of an amount of money which is paid fro its use for a
specified time.
Lien: A legal claim or attachment against property as security for payment of an
obligation.
Loan to Value Ratio: The ratio between the amount of a given mortgage loan and the
lower of sales price or appraised value.
Monthly Payment: Usually, the amount of PITI (principal, interest, taxes, and
insurance) paid each month on a mortgage note.
Mortgage: The conveyance of an interest in real property given as security for the
payment of a loan.
Mortgagee: The lender on a mortgage transaction.
Mortgage Insurance Premium (MIP): The consideration paid by a borrower for
mortgage insurance-either to the FHA or to a private mortgage insurer.
Mortgage Note: A written promise to pay a sum of money at a stated interest rate
during a specified term. The note contains a complete description of the conditions
under which the loan is to be repaid and when it is due.
Mortgagor: The borrower in a mortgage transaction who pledges property as security
for a debt.
Non-Conforming Loan: Loans not eligible for sale to Fannie Mae or Freddie Mac due to
various reasons including loan amount, credit outside normal underwriting guidelines.
Occupancy: The use of property as a full-time residence, either by the title holder
(owner occupied) or another party through a formal rental agreement.
Origination Fee: The amount charged for services performed by the company
handling the initial application and processing of the loan.
Percentage Point: One percent of the loan or a measure of the interest rate.
Principal Balance: The remaining balance due on a debt, exclusive of accrued interest.
PUD (Planned Unit Development): A planned combination of diverse land uses, such
as housing, recreation, and shipping in one contained development.
Purchase Contract: An agreement between a buyer and a seller of real property
setting forth the price and terms of the sale. Also known as a sales contract.
Survey: The measurement and description of land by a registered surveyor.
Title: The legal evidence of ownership rights to real property.
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