GLOSSARY

A

Abstract of Title

A historical summary provided by a title insurance company of all records affecting the title to a property.

Acceleration Clause

Allows a lender to declare the entire outstanding balance of a loan immediately due and payable if the borrower violates specific loan provisions or defaults on the loan.

Adjustable-Rate Mortgage (ARM)

A variable or flexible rate mortgage with an interest rate that changes according to the financial index it is based upon. ARMs may have a payment or rate cap to limit risk.
See also: Cap.

Amenities

Features of a home that enhance its value, such as the number of bedrooms, bathrooms, or proximity to public transportation.

Amortization

The gradual repayment of a loan through scheduled payments of principal and interest. An amortization schedule outlines these payments over the loan’s term.

Annual Percentage Rate (APR)

The actual interest rate, including points and finance charges, for the life of a mortgage. Required disclosure under the Truth-in-Lending Act.

Appraisal

A professional estimate of a property's value based on comparable sales, replacement cost, or income generation potential.

Appreciation

The increase in a property's value due to economic factors or inflation.

Assessment

Charges levied against a property for tax purposes or municipal improvements such as roads, sewers, or maintenance.

Assignment

The transfer of a contract or the right to buy property at predetermined rates and terms from one mortgagee to another.

Assumption

An agreement where a buyer takes over a seller’s mortgage payments and liability. Lender approval may be required.

B

Balloon Mortgage

A mortgage with a final lump sum payment that is significantly larger than preceding payments, paying the loan in full.

Biweekly Mortgage

A loan requiring payments every two weeks rather than monthly, allowing faster loan payoff.

Bridge Loan

A short-term loan that "bridges" the gap between selling one home and purchasing another.
Also known as: Swing Loan.

Broker

An intermediary between borrowers and lenders, often working with multiple lending sources for a commission.

Buy-Down

A method where a buyer or seller pays points upfront to lower the mortgage interest rate.

C

Cap

A limit on how much an ARM’s interest rate or payment can increase. Types of caps:

• Payment Cap: Limits monthly payment increases.
• Interest Cap: Limits interest rate changes.
• Life-of-Loan Cap: Limits total interest rate increase over the loan’s term.
• Annual Cap: Limits yearly interest rate increases.

Certificate of Title

A document confirming a property's legal ownership based on public records.

Closing Costs

Expenses paid at the settlement of a property purchase, including loan fees, title insurance, taxes, and legal fees.

Collateral

An asset pledged as security for a loan, such as the property itself in a mortgage.

Commitment Fee

A fee paid to secure a lender’s commitment to a loan at a specific rate and terms.

Conforming Loan

A loan that meets the guidelines set by Fannie Mae (FNMA) or Freddie Mac (FHLMC).
See also: Non-Conforming Loan.

Construction Loan

A short-term loan that finances property improvements or home building. Converts to a permanent mortgage upon completion.

Conventional Loan

A mortgage not insured or guaranteed by government agencies like the FHA or VA.

D

Debt-to-Income Ratio (DTI)

The ratio of a borrower's monthly debts to their gross income, used to determine loan eligibility.

Deed of Trust

A legal document, used in some states, where a trustee holds the property title until the loan is repaid.

Discount Points

Fees paid to lower a loan's interest rate. One point equals 1% of the loan amount.

Down Payment

The portion of the property price paid upfront by the buyer, not included in the mortgage.

E

Earnest Money

A deposit made by a buyer to show good faith in purchasing a property.

Equity

The difference between a property’s market value and any outstanding loan balance.

Escrow

A third party holding funds for property transactions or taxes and insurance payments.

F

Fair Market Value

The price a property would sell for under normal market conditions.

Fannie Mae (FNMA)

A government-sponsored enterprise that buys and sells mortgage loans in the secondary market.

Federal Housing Administration (FHA)

A government agency that insures mortgage loans to help buyers with low to moderate income.

Fixed-Rate Mortgage

A loan with an interest rate that remains constant throughout its term.

G

Ginnie Mae (GNMA)

A government agency that guarantees mortgage-backed securities for FHA and VA loans.

Good Faith Estimate (GFE)

A lender-provided estimate of closing costs and monthly mortgage payments.

H

Hazard Insurance

Insurance covering property damage from fire, storms, and other hazards.

Home Equity Loan

A loan secured by a homeowner’s equity, often used for renovations or debt consolidation.

HUD (Department of Housing and Urban Development)

A federal agency that oversees housing policies, including FHA loans.

I

Interest Rate

The percentage a lender charges on the principal amount borrowed.

Index

A published interest rate used as a benchmark for ARM adjustments.

J

Jumbo Loan

A loan that exceeds Fannie Mae and Freddie Mac limits, requiring special underwriting.

L

Lien

A legal claim against a property for unpaid debts.

Loan-to-Value Ratio (LTV)

The percentage of a property's value financed by a mortgage.

Lock-In

A lender’s guarantee of a specific interest rate for a fixed period.

M

Margin

The percentage a lender adds to an index to determine an ARM’s interest rate.

Mortgage Insurance (PMI)

Required for conventional loans with less than 20% down, protecting lenders from borrower default.

Mortgagee / Mortgagor

• Mortgagee: The lender.
• Mortgagor: The borrower.

N

Negative Amortization

When a borrower's monthly payment is too low to cover interest, causing the loan balance to increase.

P

Points

Fees charged by lenders, often to lower interest rates. Each point = 1% of the loan amount.

Pre-Qualification

A preliminary assessment of a borrower's loan eligibility.

R

Reverse Mortgage

A loan that allows homeowners aged 62+ to convert home equity into cash.

S

Second Mortgage

A loan subordinate to the primary mortgage, often at a higher interest rate.

Survey

A professional measurement of property boundaries and structures.

T

Title Insurance

A policy protecting buyers/lenders against property title errors or disputes.

Truth-in-Lending Act (TILA)

Requires lenders to disclose APR and associated loan costs.

U

Underwriter

A professional who assesses loan applications based on financial risk.

V

VA Loan

A government-backed mortgage available to eligible veterans with no down payment required.

Z

Zoning

Local government regulations controlling property use, such as residential or commercial zoning.