Mortgage terms, defined.

Over 200 home loan terms explained in plain language — from ARM and APR to VA loans and zoning.

22,000+5-star reviews

#1in Customer Satisfaction on LendingTree

100K+Families Helped

20-DayAvg. Close

Abstract (of Title): A historical summary of all recorded transactions affecting property title, reviewed by attorneys or title companies to identify problems before issuing clear and insurable title.
Acceleration Clause: A loan provision allowing lenders to declare all sums immediately due upon violation of specific loan provisions, such as property sale or payment failure.
Acknowledgment: A formal declaration before a public official that one has signed a document, required before recording real estate legal documents.
Acre: A measure of land equal to 43,560 square feet.
Adjustable-Rate Mortgage (ARM): Also known as a variable rate mortgage; the interest rate changes periodically based on a specified index.
Adjustment Period: The length of time for which the interest rate is fixed on an adjustable mortgage before it adjusts.
Agreement of Sale: A written signed agreement between seller and purchaser where the purchaser agrees to buy real estate and the seller agrees to sell upon specified terms and conditions.
Amortization: The gradual paying off of a debt by periodic installments, with each payment covering both principal and interest.
Amortization Schedule: A timetable for mortgage payment showing the amount of each payment applied to interest and principal, plus the remaining balance after each payment.
Annual Percentage Rate (APR): The effective rate of interest per year; typically higher than the note rate as it accounts for closing costs and other fees, allowing borrowers to compare loan offers on equal footing.
Application: An initial statement of personal and financial information required to approve a loan.
Application Fee: Fees paid upon application, frequently including property appraisal charges and credit report fees.
Appraisal: A professional opinion or estimate of property value at a given date, prepared by a licensed appraiser.
Appraised Value: An opinion of property value at a given time based on factors such as location, improvements, and surrounding properties.
Appreciation: An increase in property value due to market conditions, improvements, or other causes.
Arm's Length Transaction: A transaction among parties each acting in their own best interest; excludes related-party transactions such as sales between family members.
Assessed Value: The valuation placed upon property by a public tax assessor for property taxation purposes.
Assessment: A local tax levied against property for a specific purpose such as street lights, sidewalk repairs, or other public improvements.
Assumable Mortgage: A mortgage loan that allows a new buyer to take over payment obligations without changing the loan terms; typically requires lender notification and approval.
Assumption (of Mortgage): The transfer of the seller's existing mortgage to the buyer, who takes on responsibility for the remaining debt.
Attorney In Fact: One authorized to act for another under a power of attorney, which may be general or limited in scope.

Balloon Mortgage: Usually a short-term fixed-rate loan with relatively small monthly payments for a set period, followed by one large lump-sum payment for the remaining principal balance.
Balloon Payment: A lump sum payment of the unpaid loan balance due at the end of a balloon mortgage term.
Bankruptcy: A legal process for individuals or businesses unable to pay their debts; the debtor surrenders assets to a bankruptcy court. Chapter 7 bankruptcy typically stays on a credit report for 10 years; Chapter 13 for 7 years.
Beneficiary: The person designated to receive benefits resulting from certain acts or arrangements, such as a lender named as beneficiary on a deed of trust.
Bi-weekly Mortgage: A mortgage requiring half the normal monthly payment every two weeks; because there are 26 bi-weekly periods per year, this equals 13 full monthly payments annually, reducing the loan term and total interest paid.
Blanket Mortgage: A mortgage covering more than one piece of property, such as a developer's entire subdivided tract.
Bond: A debt instrument used in capital markets by governments, corporations, and municipalities to raise funds; mortgage-backed bonds are backed by pools of home loans.
Borrower (Mortgagor): One who applies for and receives a loan secured by real estate and is responsible for repaying the mortgage.
Bridge Loan: A short-term interim loan used when buyers cannot sell their current home but need funds to close on a new property.
Broker: See Real Estate Broker or Mortgage Broker.
Buydown: Obtaining a lower interest rate by paying additional points at closing. The lower rate may apply for the full loan duration or only for the initial years.
Buyer's Broker: A real estate agent hired specifically by buyers to locate properties; represents buyers and negotiates on their behalf with the seller's agent.
Buyer's Market: Market conditions that favor buyers — typically more sellers than buyers — giving buyers ample choice and leverage to negotiate lower prices.
Bylaws: A set of regulations by which an organization conducts its business, such as the rules governing a condominium association.

Cap (on Interest): A consumer safeguard limiting how much an adjustable-rate mortgage's interest rate can change per adjustment period and/or over the life of the loan.
Cap (on Payment): A consumer safeguard limiting how much the monthly payment on an adjustable-rate mortgage can change at each adjustment.
Capital Gains: Profit earned from the sale of real estate or other investments. Sellers may be able to exclude or defer taxes on capital gains from a primary residence sale; consult a tax advisor.
Cash Flow: The amount of cash generated over a period by an income-producing property after paying all operating expenses and debt service.
Cash Out: Receiving cash back when refinancing a mortgage by borrowing more than the existing loan balance.
Cash Reserve: Some lenders require buyers to have sufficient cash remaining after closing — typically enough to cover the first two mortgage payments — as a financial cushion.
CC&Rs – Covenants, Conditions, and Restrictions: The basic rules establishing the rights and obligations of property owners within a condominium, subdivision, or planned unit development.
Ceiling: The maximum allowable interest rate over the entire life of an adjustable-rate mortgage loan.
Certificate of Eligibility: A document issued by the Department of Veterans Affairs to those qualifying for VA loans, obtained by submitting a DD-214 to the local VA office.
Certificate of Occupancy: A document issued by local government confirming that a property meets building standards and complies with applicable codes, authorizing it to be occupied.
Certificate of Title: An opinion rendered by an attorney as to the status of property title based on a review of public records; provides less protection than title insurance.
Certified Mortgage Banker (CMB): A professional designation in the mortgage banking industry indicating advanced education and experience.
Chain of Title: The chronological order of property conveyances — transfers of ownership — from the original owner to the present owner.
Clear Title: A marketable title free of liens, clouds, and disputed interests; most lenders require clear title before closing.
Closed-end Loan: A loan agreement where the borrower receives a specific amount and repays it, plus finance charges, over a definite period with no additional advances available.
Closing: The final step in a real estate transaction when ownership is transferred from seller to buyer per the sales contract, and all required documents are signed.
Closing Costs: Expenses incurred by buyers and sellers in a real estate transaction beyond the property price, including loan origination fees, title insurance, appraisal, and prepaid items.
Closing Disclosure: A form provided to borrowers at least three business days before closing that outlines the final loan terms and closing costs, combining the old HUD-1 statement and Truth-in-Lending disclosure.
Cloud on Title: An outstanding claim, lien, or encumbrance that, if valid, would affect or impair the owner's clear title to a property.
Co-op (Cooperative): An apartment building owned by a corporation whose stockholders are the building's residents; residents purchase stock in the corporation in exchange for the right to occupy a specific unit.
Collateral: Property pledged as security for a loan; if the borrower defaults, the lender may seize the collateral to satisfy the debt.
Commission: Money paid to real estate agents or brokers by sellers as compensation for finding buyers and completing sales, typically a percentage of the sale price.
Commitment Letter: A written document from a lender agreeing to make a loan on specific terms to a borrower or builder, subject to stated conditions.
Community Home Buyer's Program: Alternative financing allowing modest-income households to qualify using nontraditional credit histories and with waived cash reserve requirements.
Community Home Improvement Mortgage Loan: Alternative financing allowing low- and moderate-income buyers to obtain 95% financing for home purchase and improvements combined.
Community Land Trust Mortgage Loan: Alternative financing enabling low- and moderate-income buyers to purchase nonprofit-improved housing while leasing the land beneath it.
Condemnation: The taking of private property for public use with fair compensation to the owner under eminent domain, or the declaration of a structure as unfit for use.
Conditional Commitment: A written document from a lender agreeing to make a loan, provided that certain conditions are met prior to closing.
Condominium: Individual ownership of a dwelling unit plus a proportional interest in common areas and facilities serving the multi-unit project.
Conforming Loan: A conventional mortgage at or below the loan limit established by Fannie Mae (FNMA) and Freddie Mac (FHLMC), which makes these loans eligible for purchase on the secondary market.
Consideration: Anything of value given to induce another to enter into a contract; earnest money is a common form of consideration in real estate transactions.
Construction Loan: A short-term loan for building construction; provides periodic disbursements as construction stages are completed, typically replaced by a permanent mortgage upon completion.
Contingency: A condition that must be satisfied before a buyer can close a property purchase, such as a satisfactory home inspection or mortgage approval.
Contract: A legally binding agreement between competent parties to do or not do certain things for consideration, typically required to be in writing for real estate transactions.
Contract Sale or Deed: A real estate installment selling arrangement where the buyer occupies the property but the seller retains the title until the full sales price has been paid.
Conventional Loan: Any mortgage loan other than a VA or FHA loan; may be conforming or non-conforming based on its loan amount.
Conventional Mortgage: Any mortgage that is not insured or guaranteed by the federal government.
Conversion Clause: A provision in some adjustable-rate mortgages permitting the borrower to convert to a fixed-rate loan under specified conditions at predetermined times.
Convertible ARMs: Adjustable-rate loans that include an option to convert to a fixed-rate loan based on predetermined formulas during specified time periods.
Conveyance: The legal transfer of real estate title from one party to another, typically by deed.
Covenant: A mortgage clause that obligates or restricts the borrower; violation of a covenant can result in foreclosure.
Credit Limit: The maximum amount that may be borrowed under a home equity line of credit.
Credit Report: A report detailing a borrower's credit history, including payment history on revolving accounts (credit cards), installment accounts (auto, student loans), and any derogatory items.

Debt Consolidation: Combining multiple debt payments into a single payment — often through a home equity or refinance loan — to simplify repayment or reduce overall interest costs.
Debt Service: The total amount of credit card, auto, mortgage, or other debt requiring periodic payment.
Debt-to-Income Ratio (DTI): The percentage resulting from dividing a borrower's monthly long-term debt obligations by their gross monthly income; lenders use this to evaluate repayment capacity.
Deed: A written document that transfers real property title from one owner to another; must be signed, witnessed, and delivered to be valid.
Deed in Lieu: A deed given by a borrower to the lender to satisfy a mortgage debt and avoid formal foreclosure proceedings.
Deed of Trust: Used in many states instead of a traditional mortgage; involves the borrower, a neutral trustee, and the lender — the trustee holds legal title as security until the loan is repaid.
Deed Restriction: A clause in a deed that limits or restricts how the land may be used.
Default: Failure to meet legal obligations in a contract, such as failing to make monthly mortgage payments on time.
Defective Title: Any recorded instrument or claim that prevents the grantor or seller from conveying clear title to a property.
Deficiency Judgment: A personal claim against a borrower when the proceeds from a foreclosure sale are not sufficient to cover the full mortgage balance.
Delinquency: Failure to make timely loan payments; repeated or prolonged delinquency can lead to foreclosure.
Delivery: The final, unconditional, and absolute transfer of a deed to the grantee, after which the grantor cannot revoke it.
Department of Veterans Affairs (VA): An independent federal agency that guarantees long-term, low- or no-down-payment mortgages to eligible veterans and service members.
Deposit: Cash paid by the buyer to the seller when a formal sales contract is signed, demonstrating the buyer's good faith and commitment.
Depreciation: A decline in property value due to wear and tear, obsolescence, adverse neighborhood changes, or other factors.
Discount: The difference between the face value of a note or mortgage and its present cash value when sold on the secondary market.
Discount Points: Fees paid to a lender at closing to reduce the interest rate on a mortgage; one point equals one percent of the loan amount.
Documentary Tax Stamps: Stamps affixed to a deed showing the amount of transfer tax paid upon property sale.
Dower: The legal rights of a widow or child to a portion of a deceased husband's or father's real estate property.
Down Payment: The amount paid for a property purchase in addition to the mortgage; does not include closing costs.
Dragnet Clause: A provision pledging several properties as collateral for one loan; default could trigger foreclosure on any of the pledged properties.
Due on Sale Clause: A clause in a mortgage stating the entire loan balance becomes due and payable when the property is sold or transferred.

Earnest Money: A deposit made by a buyer toward the down payment to demonstrate good faith; typically held by a broker or escrow company until closing.
Easement: The right to use another's land for a specific purpose, such as a utility right-of-way; may be temporary or permanent.
Effective Interest Rate: The true yearly cost of credit expressed as a percentage; includes upfront costs and is usually higher than the stated note rate.
Eminent Domain: The right of a government or public utility to acquire private property for necessary public use, with fair compensation paid to the owner.
Encroachment: A building, part of a building, fence, or other physical structure that extends onto or overlaps another's property.
Encumbrance: A legal right or interest in land that affects clear title and may diminish its value; can include zoning restrictions, easements, liens, or unpaid taxes.
Entitlement: The VA home loan benefit, also known as eligibility; represents the amount the VA will guarantee on a veteran's home loan.
Equal Credit Opportunity Act (ECOA): A federal law requiring lenders and creditors to make credit equally available to all creditworthy applicants without discrimination.
Equity: The difference between a property's current market value and the total of all loans or liens against it.
Equity Loan: A loan secured by the borrower's equity in their home, often used for home improvements, debt consolidation, or other major expenses.
Equity Sharing: A joint ownership arrangement between an owner-occupant and an investor; the investor may receive tax advantages, and profits are split when the property is sold.
Escheat: The reversion of property to the state when an owner dies without a valid will and has no legal heirs.
Escrow: A neutral third party that holds funds, documents, and instructions in a real estate transaction until all conditions are met; also refers to the portion of monthly mortgage payments held by the lender to pay taxes and insurance.
Executor (Executrix): A person named in a will to carry out its provisions and manage the disposition of the estate.

Fair Credit Reporting Act: A federal consumer protection law establishing procedures for correcting errors in credit records and regulating how credit information may be used.
Fannie Mae (FNMA): The Federal National Mortgage Association; a government-sponsored enterprise that purchases loans from lenders, packages them into mortgage-backed securities, and sells them to investors, thereby replenishing lenders' funds.
Farmer's Home Administration (FmHA): An agency within the U.S. Department of Agriculture administering assistance programs for rural home and farm purchasers.
Federal Home Loan Mortgage Corporation (FHLMC, Freddie Mac): A government-sponsored enterprise that purchases loans from lenders who are members of the Federal Reserve and Federal Home Loan Bank System, securitizes them, and sells mortgage-backed securities.
Federal Housing Administration (FHA): A federal agency within HUD that administers loan programs and insures lenders against losses on qualifying home loans, increasing access to homeownership.
Federal National Mortgage Association (FNMA, Fannie Mae): See Fannie Mae.
Federal Reserve System: The central banking system of the United States, which regulates member commercial banks and conducts national monetary policy, influencing interest rates throughout the economy.
Fee Simple (Fee Absolute): Absolute ownership of real property with unconditional power of disposition during the owner's lifetime; the most complete form of property ownership.
FHA Loan: A loan insured by the Federal Housing Administration; available to qualified purchasers with lower down payment requirements and more flexible credit standards than conventional loans.
FHA Mortgage Insurance: Two insurance premiums required on FHA loans: an upfront mortgage insurance premium paid at closing (which can be financed) and an annual premium paid monthly.
Fidelity Bond: Insurance purchased by employers to cover losses caused by employees entrusted with valuable property or financial assets.
Fiduciary: A person in a position of trust with a legal duty to act in the client's best interest; real estate brokers and certain other professionals are fiduciaries.
Finance Charge: The interest and fees charged by a lender as the cost of credit.
Firm Commitment: An FHA promise to insure a mortgage for a specific property and borrower, or a lender's promise to make a specific mortgage loan.
First Mortgage: A mortgage that holds the primary lien position over all other mortgages on a property; satisfied first in foreclosure proceedings.
Fixed-Rate Mortgage: A mortgage whose interest rate remains the same throughout the entire loan term, providing predictable monthly payments.
Fixture: An improvement or item of personal property that has been attached to land or a building so as to become part of the real estate; generally transferred to the buyer upon sale.
Flood Insurance: Insurance coverage for property damage caused by natural flooding; may be required for properties located in designated flood zones.
Forbearance: A lender's postponement of foreclosure, giving a borrower additional time to catch up on overdue payments.
Foreclosure: The legal process by which a lender forces the sale of a property because the borrower has not met the mortgage terms, typically by failing to make payments.
Freddie Mac (FHLMC): The Federal Home Loan Mortgage Corporation; see Federal Home Loan Mortgage Corporation.
Free and Clear: A property with no outstanding liens, mortgages, or other encumbrances against it.
FSBO (For Sale By Owner): A property sold by the owner directly, without listing it with a real estate broker.
Fully Indexed Rate: On an adjustable-rate mortgage, the current value of the chosen index plus the lender's margin; represents the fully adjusted interest rate.

General Warranty Deed: A deed in which the grantor guarantees to protect the grantee against any other claims on the property title.
Ginnie Mae (GNMA): The Government National Mortgage Association; a government agency within HUD that buys VA and FHA loans from lenders, securitizes them, and sells Ginnie Mae mortgage-backed securities.
Good Faith Estimate: A written estimate of closing costs that lenders were formerly required to provide within three business days of a loan application; replaced by the Loan Estimate form.
Government National Mortgage Association (GNMA): See Ginnie Mae.
Grace Period: A period after a payment due date during which a payment may be made without incurring a late penalty; however, the late payment may still be reported to credit bureaus.
Graduated Payment Mortgage (GPM): A mortgage with initially lower payments that increase annually for a set period before leveling off at a fully amortizing payment amount.
Grandfather Clause: A provision in a law or regulation that permits the continuation of an activity or use that was previously permitted but is now prohibited under new rules.
Grantee: The party in a deed transaction who receives the property; the buyer or recipient.
Grantor: The party in a deed transaction who conveys the property; the seller or giver.
Gross Income: A borrower's income before taxes or expenses are deducted; used by lenders when calculating qualifying ratios.
Guaranteed Mortgage: A mortgage with a third-party guarantee providing additional assurance that the obligation will be fulfilled.
Guaranty: A promise by one party to pay a debt or perform an obligation contracted by another party if the original party fails to do so.

Hazard Insurance: Property insurance protecting against fire and other specified risks; homeowners policies typically include coverage for theft and personal liability as well.
Home Equity Line of Credit (HELOC): A revolving credit line allowing borrowers to draw funds as needed up to a maximum credit limit; repayment is secured by the equity in the home.
Home Equity Loan: A fixed- or adjustable-rate loan for various purposes secured by the borrower's home equity; interest is generally tax-deductible (consult a tax advisor).
Home Purchase Loan: A loan used to finance the acquisition of a home or to repay an existing debt incurred to acquire a home.
Home Warranty Plan: Insurance covering appliances, heating systems, and other home components for a specified period; typically purchased at closing.
Homeowner's Warranty: Insurance covering repairs to specified parts of a house for a specific period, often provided by a builder on a new home.
Homeowners Association (HOA): An organization of homeowners in a subdivision, planned unit development, or condominium that manages common areas, enforces rules, and collects dues.
Homestead: A status provided to a homeowner's principal residence in some states, offering protection against certain types of judgments up to a specified dollar amount.
Homestead Exemption: Available in some states; reduces the assessed value of a principal residence for property tax calculation purposes.
Housing and Urban Development (HUD): A U.S. government department responsible for implementing federal housing and community development programs.
Housing Code: A local ordinance establishing minimum safety and sanitation standards for existing residential buildings.
Housing Expenses to Income Ratio: The percentage derived by dividing a borrower's total monthly housing expenses by their gross monthly income; used by lenders when underwriting a loan.
HUD-1 Settlement Statement: The closing document formerly required by HUD that outlines all settlement costs; replaced by the Closing Disclosure effective October 2015.
Hypothecate: To pledge property as security for a debt without surrendering physical possession of it.

Impound Account: A portion of a borrower's monthly payments held by the lender to pay property taxes, homeowners insurance, and other items when they come due; also called an escrow account or reserves.
Improvements: Additions to raw land such as buildings, roads, and utilities that add value to the property.
Income Approach: An appraisal method that estimates property value based on the income the property is capable of generating.
Income Property: Real estate purchased to generate rental income, such as apartment buildings, office buildings, or shopping centers.
Index: A statistic indicating current economic or financial conditions; used to determine periodic interest rate adjustments on adjustable-rate mortgages.
Ingress and Egress: The right to enter and exit a property without exclusive parking rights; see Easement.
Installment Sale: See Land Contract.
Insured Mortgage: A mortgage insured against loss to the lender upon borrower default and inadequate proceeds from a property sale.
Interest Rate: The periodic charge, expressed as a percentage of the outstanding balance, for the use of borrowed money.
Interest Rate Cap: An ARM provision limiting how much the interest rate can increase in a given adjustment period; see also Lifetime Cap.
Interim Financing: A construction loan made during the building completion period; typically replaced by a permanent mortgage once construction is finished.
Investor: The entity that provides funds for a lender to originate loans; may be an individual, institution, or government-sponsored enterprise.

Joint and Several Liability: A legal arrangement where a creditor can demand full repayment from any one of multiple co-borrowers; each borrower is individually liable for the entire debt.
Joint Ownership Agreement: An agreement between co-owners of property defining their respective rights, ownership percentages, obligations, and responsibilities.
Joint Tenancy: Property ownership by two or more people, each with an equal undivided interest and a right of survivorship — meaning the surviving owner(s) automatically inherit a deceased owner's share.
Judgment: A court decision stating that one individual is indebted to another, specifying the amount owed.
Judgment Lien: A legal claim against a debtor's property resulting from a court judgment; must be satisfied before clear title can be transferred.
Jumbo Loan: A mortgage loan that exceeds the conforming loan limits established by Fannie Mae or Freddie Mac, typically subject to different underwriting standards and rates.
Junior Mortgage: A mortgage that is subordinate to a prior (senior) mortgage; in foreclosure proceedings, junior mortgages are paid only after the first mortgage is satisfied.

Kicker: An additional payment required by a mortgage beyond normal principal and interest, often in exchange for a lower rate; also known as a participation mortgage arrangement.

Land Contract: A real estate installment sales arrangement where the buyer uses and occupies the property but the seller retains the legal title until the purchase price is paid in full.
Late Charge: A penalty a borrower pays when a mortgage payment is made after the due date and grace period.
Lease with Option to Purchase: A lease agreement that gives the tenant the right — but not the obligation — to purchase the property at a predetermined price within a specified period.
Lease-Purchase Mortgage Loan: Alternative financing allowing low- and moderate-income buyers to lease a property from a nonprofit organization with an option to purchase.
Leasehold Estate: A tenant's right of possession for a specific period under a lease agreement.
Legal Description: A legally acceptable method of identifying real property by government rectangular survey, metes and bounds, or recorded plat map.
Lessee: The person to whom property is rented under a lease; the tenant.
Lessor: The person who rents property to another under a lease; the landlord.
Lien: A legal claim against property for an unpaid debt, judgment, mortgage, or tax obligation; must typically be satisfied before clear title can be transferred.
Life Estate: A real property interest lasting for the lifetime of a designated person; upon that person's death the property reverts to the grantor or passes to a named third party.
Lifetime Cap: An ARM provision limiting the total interest rate increase or decrease over the entire life of the loan.
Lis Pendens: Latin for 'lawsuit pending'; a recorded notice that litigation affecting the title to a property is currently pending.
Loan Application: The document required by a lender before approving a loan; includes detailed information about the borrower's finances, employment, assets, and the property being purchased.
Loan Commitment: See Commitment Letter.
Loan Estimate: A form provided to borrowers within three business days of a loan application that outlines estimated loan terms and closing costs; combines the old Good Faith Estimate and initial Truth-in-Lending disclosure.
Loan Origination Fee: A fee charged by a lender or broker for processing and originating a loan; differs from discount points in that it does not reduce the interest rate.
Loan Servicing: The ongoing administration of a mortgage loan, including collecting payments, managing escrow accounts, handling late payments, and pursuing foreclosure if necessary.
Loan-to-Value Ratio (LTV): The ratio of the loan amount to the appraised value or purchase price of the property, whichever is lower; expressed as a percentage. A higher LTV represents more risk to the lender.
Lock (Rate Lock): A lender's commitment guaranteeing a specific interest rate or loan features for a defined period, protecting the borrower against rate increases while their loan is being processed.

Margin: A fixed number that a lender adds to the chosen index on an ARM to establish the fully adjusted interest rate.
Market Value: The highest price a willing buyer would pay and the lowest price a willing seller would accept for a property in an open market with full information.
Marketable Title: A title free of liens, clouds, and legal defects; one that a reasonably well-informed buyer would accept.
Maturity: The date when a loan, note, or bond becomes due and payable in full.
Mechanics Lien: A claim that a contractor, subcontractor, or supplier can file against a property for labor or materials provided but not paid for.
Minimum Payment: The minimum amount that must typically be paid monthly on a home equity loan or line of credit.
Mortgage: A written instrument creating a lien on real property as security for the repayment of a specified debt.
Mortgage-Backed Security (MBS): A bond or financial obligation secured by a pool of mortgage loans; allows investors to invest in mortgages without directly making loans.
Mortgage Banker: A company or individual that originates and often services mortgage loans, generally selling them to investors while retaining the servicing rights.
Mortgage Broker: An intermediary who takes loan applications and processes paperwork on behalf of multiple lenders; does not fund loans with their own money.
Mortgage Insurance: Insurance that protects a lender against losses when a borrower defaults; typically required when the down payment is less than 20 percent.
Mortgage Life Insurance: Term life insurance designed to pay the remaining mortgage balance if the insured borrower dies.
Mortgage Note: The written agreement to repay a loan secured by a mortgage; serves as evidence of the debt and specifies the terms of repayment.
Mortgagee: The lender in a mortgage transaction.
Mortgagor: The borrower in a mortgage transaction.

Negative Amortization: A situation where a borrower's loan balance increases because monthly payments do not cover all of the interest owed; the unpaid interest is added to the principal balance.
Net Effective Income: A borrower's gross income minus federal income tax; used in some qualifying calculations.
Net Worth: The value of all assets minus total liabilities; indicates a borrower's overall financial strength.
Non-assumption Clause: A provision in a mortgage contract forbidding the loan to be assumed by another buyer without prior lender approval.
Non-conforming Loan: A mortgage that does not meet the underwriting guidelines of Fannie Mae or Freddie Mac, typically due to loan size or borrower characteristics.
Notary Public: A person authorized by the state to witness and certify the signing of documents such as deeds, contracts, and mortgages.
Note: A written instrument acknowledging a debt and promising repayment; the promissory note is the borrower's personal promise to repay the mortgage.
Notice of Default: A formal written notice sent to a defaulting borrower informing them of their default status and the lender's intention to pursue foreclosure if the default is not cured.

Offer (to Purchase): An expression of willingness to purchase property at a specified price and under specified terms; becomes a contract upon acceptance.
Offeree: The party who receives an offer; in a real estate transaction, the seller is the offeree when a buyer makes an offer.
Offeror: The party who makes an offer; in a real estate transaction, the buyer is the offeror.
Open-End Mortgage: A mortgage permitting the borrower to receive additional advances under the same mortgage, up to a specified maximum amount, subject to certain conditions.
Open House: A method of showing a property by leaving it open for inspection by interested prospective buyers during a scheduled period.
Oral Contract: A verbal agreement; normally unenforceable for real estate sales or transfers, which require written documentation.
Origination Fee: See Loan Origination Fee.
Owner Financing: A purchase arrangement where the seller provides all or part of the financing directly to the buyer.
Owner Occupant: A person who owns and lives in a property as their primary residence.
Owner of Record: The individual or entity named on the recorded deed at the county recorder's office as the current legal owner.

Package Mortgage: A mortgage covering both the real property and personal property (such as appliances) included in the sale.
Partial Release: A mortgage provision allowing some of the pledged properties to be freed from the collateral while the loan remains in force.
Participation Mortgage: A mortgage arrangement allowing the lender to share in part of the property's income or resale proceeds in exchange for providing financing.
Payment Cap: See Cap (on Payment).
Permanent Loan or Mortgage: A long-term mortgage; often refers to the mortgage that pays off and replaces a construction loan once building is complete.
PITI: An abbreviation for Principal, Interest, Taxes, and Insurance — the four components typically combined in a single monthly mortgage payment.
Planned Unit Development (PUD): A zoning classification allowing flexible subdivision design, including individually owned units and jointly owned common areas and facilities.
Plat: A plan or map of a specific land area showing lot lines, street locations, and dimensions.
Pledged Account Mortgage (PAM): A mortgage arrangement where money is placed in a pledged savings account; the funds and accrued interest gradually reduce the borrower's monthly payments over time.
PMI: See Private Mortgage Insurance.
Points: Fees paid to a lender at closing; one point equals one percent of the loan amount. Includes both origination points (lender compensation) and discount points (buying down the rate).
Portfolio Loan: A loan held by the originating lender or bank as an investment, rather than being sold on the secondary market; may have more flexible underwriting criteria.
Power of Attorney: A written document authorizing one person (the attorney-in-fact) to act on behalf of another person in legal and financial matters.
Prepaid Expenses: Amounts collected at closing to establish an escrow account or to cover interest, taxes, and insurance for the period between closing and the first regular payment.
Prepaid Interest: Interest charged at closing to cover the cost of borrowing from the closing date through the end of that month.
Prepayment: Full or partial payment of mortgage principal before the scheduled due date, through extra payments, refinancing, or property sale.
Prepayment Penalty: A fee charged to a borrower who pays off a loan before its scheduled maturity date; not all mortgages carry this penalty.
Prequalification: A preliminary process determining how much money a prospective buyer may be able to borrow, based on self-reported information, before a formal application is submitted.
Primary Mortgage Market: The market in which mortgage loans are originated directly with borrowers, including banks, savings institutions, credit unions, mortgage companies, and brokers.
Prime Rate: The lowest commercial interest rate that major banks charge on short-term loans to their most creditworthy customers; a benchmark that influences other loan rates.
Principal: The outstanding loan balance, excluding interest; the face value of the mortgage note.
Private Mortgage Insurance (PMI): Insurance required when a borrower's down payment is less than 20 percent of the purchase price; protects the lender against default losses and allows the borrower to obtain financing with a smaller down payment.
Probate: The court process establishing the validity of a deceased person's will and overseeing the administration and distribution of the estate.
Property Tax: A government levy based on the assessed market value of a property, determined by the county assessor's office.
Prorate: To divide proportionately; at closing, items such as property taxes, insurance, and rent are prorated so each party pays their fair share.
Public Sale: An auction of property open to the general public, typically following a foreclosure or tax delinquency.
Purchase Money Mortgage: A mortgage used to finance the purchase of a property; may be provided by a lender or by the seller.

Qualifying Ratios: Comparisons of a borrower's monthly debts and gross monthly income used by lenders to determine eligibility; includes both the housing expense ratio and the total debt-to-income ratio.
Quiet Title Action: A court action brought to settle a title dispute, removing clouds or competing claims and establishing clear ownership.
Quit Claim Deed: A deed that transfers whatever interest the maker may have in a property — without warranties — to another party; assumes all risks of title defects.

Radon: A naturally occurring radioactive gas that can accumulate in homes; in sufficient concentrations it may cause health problems, and testing is often recommended before purchase.
Rate Lock: See Lock (Rate Lock).
Real Estate: Land and anything permanently attached to it, including buildings and fixtures.
Real Estate Agent: A licensed individual who negotiates and transacts real estate sales on behalf of buyers or sellers.
Real Estate Broker: An individual who owns a real estate company or holds a broker's license; legally responsible for the actions of agents working under them.
Real Estate Investment Trust (REIT): A trust that uses pooled investor money to purchase and manage income-producing real estate, providing investors with tax advantages and liquidity.
Real Estate Settlement Procedures Act (RESPA): A federal law regulating how mortgage lenders must treat loan applications on one- to four-unit residential properties, including disclosure requirements.
Realtor: A real estate professional who is a member of the National Association of Realtors (NAR) and is bound by its code of ethics.
Reconveyance: When a mortgage is paid in full, the lender conveys the property title back to the borrower, releasing the lien.
Recording: The act of entering instruments such as deeds, mortgages, and liens into public record books affecting real property title; most lenders require recording as a condition of closing.
Recording Fees: Money paid to a local government authority to record the home sale and mortgage documents in the public record.
Recourse: The right of a lender holding a mortgage to make a personal financial claim against a defaulting borrower beyond repossessing the pledged property.
Redlining: The illegal practice of refusing to make loans or provide insurance in certain geographic areas, typically based on racial or ethnic composition.
Refinancing: Repaying an existing loan with proceeds from a new loan, using the same property as collateral; typically done to obtain a lower rate, change the loan term, or access equity.
Regulation Z (Reg Z): A federal regulation implementing the Truth in Lending Act, requiring creditors to provide full disclosure of loan terms, including the APR.
Rescission: The cancellation of a contract; under federal law, homeowners generally have a three-business-day right to rescind when refinancing their primary residence.
RESPA: See Real Estate Settlement Procedures Act.
Restrictive Covenants: Private restrictions on the use of real property created by deed; may bind current and subsequent purchasers of the property.
Reverse Mortgage: A loan product for homeowners typically 62 or older that allows them to convert home equity into income or a lump sum without selling the home; the loan balance increases over time and is repaid when the homeowner sells, moves out, or dies.
Right of Survivorship: The right of a surviving joint tenant to automatically acquire the deceased joint owner's share of the property, bypassing probate.
Rollover Loan: A loan amortized over a long period but with an interest rate fixed for a shorter period; at the end of the fixed period, the rate may be renegotiated based on loan terms.

Sales Contract: See Agreement of Sale.
Savings & Loan (Thrift): A depository institution specializing in originating, servicing, and holding residential mortgage loans.
Second Home: A vacation or recreational property used occasionally by the owner but not rented as an investment property; subject to different financing and tax rules than a primary residence.
Second Mortgage: A mortgage subordinate to the first mortgage; in foreclosure, paid only after the first mortgage is satisfied; typically carries a higher interest rate due to greater lender risk.
Secondary Mortgage Market: The market where lenders sell existing mortgages to investors such as Fannie Mae, Freddie Mac, and Ginnie Mae, replenishing lenders' funds to originate new loans.
Section 8 Housing: Privately owned rental units participating in the federal low-income rental assistance program; landlords receive subsidies in exchange for renting to qualifying low-income tenants.
Securities and Exchange Commission (SEC): The federal agency that regulates securities markets and the securities industry, including the issuance of mortgage-backed securities.
Security: Property or other assets pledged as collateral to secure a loan.
Seller Take-Back: An arrangement where the property seller provides financing to the buyer, often combined with an assumed mortgage.
Servicing: The ongoing administration of a mortgage loan on behalf of the investor; includes billing, collecting payments, managing escrow accounts, and handling defaults.
Settlement: See Closing.
Shared Appreciation Mortgage: A residential loan with a below-market fixed interest rate; in exchange, the lender is entitled to a specified share of the property's appreciation when it is sold.
Sheriff's Deed: A deed issued to the buyer at a property sold at a sheriff's foreclosure sale.
Single-Family Residence (SFR): A residential structure designed to house one family.
Special Assessment: An additional tax levied against a specific property or neighborhood to fund public improvements such as curbs, street lighting, or utility extensions.
Special Warranty Deed: A deed in which the grantor warrants the title only against claims arising from the grantor's own actions, not against defects existing before the grantor acquired the property.
Specific Performance: A legal remedy requiring a party to fulfill the specific terms of a contract when monetary damages are considered insufficient.
Standard Uniform Loan Application (Form 1003): The standard loan application form widely used throughout the mortgage industry.
Subdivision: A tract of land divided into individual building lots; typically includes streets, utilities, and recorded plat maps.
Subordination: The placement of a loan in a lower priority lien position relative to another loan; a second mortgage is subordinate to a first mortgage.
Survey: A map prepared by a licensed surveyor measuring and charting a property's boundaries, improvements, easements, and relationship to surrounding parcels.
Sweat Equity: Value added to a property through improvements or labor performed by the owner rather than paid contractors.

Takeout Financing: A permanent mortgage commitment that pays off and replaces a construction loan upon completion of a building project.
Tax Lien: A legal claim placed on a property for nonpayment of property taxes; must be resolved before clear title can be transferred.
Tax Sale: A public auction of property by a government authority as a result of nonpayment of property taxes.
Teaser Rate: A low initial interest rate on an adjustable-rate mortgage or other loan, designed to attract borrowers; the rate typically increases after an introductory period.
Tenancy by the Entirety: A form of property co-ownership available to married couples in some states; each spouse owns the entire property, and the survivor automatically inherits without probate.
Tenancy in Common: Co-ownership of property by two or more persons, each with an undivided interest but without the right of survivorship; each owner's share can be transferred or inherited independently.
Term: The period from a mortgage's start date to its scheduled payoff date.
Time is of the Essence: A legal contract phrase requiring that all deadlines be interpreted strictly; failure to meet a deadline is considered a breach of contract.
Time Share: A form of property ownership where multiple parties each hold rights to use the property during specific time intervals.
Title: The legal right to ownership of real property, evidenced by a deed or other document.
Title Company: A company specializing in searching property titles and issuing title insurance policies.
Title Insurance: Insurance protecting the insured (buyer and/or lender) against losses resulting from defects in the property title that existed before the policy was issued.
Title Report: A document indicating the current state of a property's title, including ownership, mortgages, liens, easements, and any known defects.
Title Search: An examination of public records to determine the ownership of a property and any outstanding liens, encumbrances, or defects affecting the title.
Town House: A two- or more-story residence attached to similar units, commonly found in planned unit developments and condominiums.
Transaction Fee: A fee charged each time a home equity line of credit is accessed.
Transfer Tax: A tax paid to city, county, or state government upon the sale or transfer of real property.
Trust Account: A separate bank account maintained by a broker or escrow company to hold client funds; these funds cannot be commingled with personal or business funds.
Trustee: A party given legal responsibility to hold and manage property for the benefit of another; in a deed of trust, the trustee holds legal title as security for the lender.
Truth in Lending: See Regulation Z.
Two-Step Mortgage: A mortgage in which the borrower receives a fixed rate for a specified number of years, followed by a new rate adjustment based on the loan terms.

Underwriting: The process of evaluating a borrower's creditworthiness and the property's value to decide whether to approve a loan and on what terms.
Undivided Interest: An ownership right to use and possess property shared among co-owners without physically separate or exclusive portions.
Unencumbered Property: Real estate with a free and clear title — no outstanding mortgages, liens, or other encumbrances.
Unimproved Property: Land that has received no development or improvements; raw land.
Unrecorded Deed: A deed that transfers title between the parties but has not been entered into the public record; does not provide constructive notice to third parties.
Usury: Charging an interest rate greater than that permitted by law.

VA Loan: A long-term, low- or no-down-payment mortgage guaranteed by the Department of Veterans Affairs for eligible veterans, active-duty service members, and surviving spouses.
VA Funding Fee: A one-time fee paid to the Department of Veterans Affairs for every VA loan; offsets the cost of the guaranty program. May be financed into the loan.
Variable Rate: An interest rate that changes periodically in relation to an index; monthly payments may increase or decrease as the rate adjusts.
Variable Rate Mortgage: See Adjustable-Rate Mortgage (ARM).
Verification of Deposit (VOD): A document signed by the borrower's bank verifying account balances and history; used by lenders to confirm asset information.
Verification of Employment (VOE): A document signed by the borrower's employer verifying starting date, job title, salary, and likelihood of continued employment.

Waiver: The voluntary renunciation, abandonment, or surrender of a known right, claim, or privilege.
Warehouse Fee: A charge when a mortgage company must borrow short-term funds to originate loans before selling them on the secondary market.
Wraparound Mortgage: A financing arrangement that retains an existing loan and adds a new loan; the borrower makes payments to a second lender or the homeowner, who in turn services the underlying loan.

Yield: The ratio of investment income to total investment cost over a given period; the effective annual return on a mortgage or investment.

Zero Lot Line: A housing form where individual residential units are built to the edge of the lot, often attached to adjacent units.
Zoning: A legal designation by city or county government specifying permitted uses for a given area of land, such as residential, commercial, industrial, or agricultural.

Get started

Ready to explore your mortgage options?

Understanding the terms is the first step. A Royal United loan expert can walk you through what they mean for your specific situation.

Get My Options Call (888) 769-2565