Adjustable Rate Mortgage (ARM)
With a fixed-rate mortgage, the interest rate stays the same during the life of the loan. An Adjustable Rate Mortgage, or ARM, is a mortgage with an initial fixed rate period, generally 1, 3, 5, or 7 years, after which time the rate adjusts (usually annually) for the remaining term of the loan. Rate adjustment is based on the market rate at that time, using an index and a margin.
Learn more about ARMs on the Adjustable Rate Mortgage page.
The Adjustment Date, also known as the Interest Adjustment Date, is the date in which the interest begins to accrue on a mortgage, before payment is made on the mortgage. Usually, this is the date that mortgage funds are dispersed.
Amortization is the process by which loan principal decreases over the life of a loan. With each mortgage payment made, part of the payment is applied towards reducing the principal, and another part of the payment is applied towards paying the interest.
See Amortization Schedule.
In an amortizing loan, a portion of every payment is applied towards both the interest and the principal balance of the loan. The exact amount applied to principal each time varies (with the remainder going to interest). An amortization schedule is a timetable for payment of a mortgage. It shows the amount of each payment applied to interest and principal, and the remaining balance based on the loan terms. Initially, a large portion of each payment is devoted to interest. As the loan matures, larger portions go towards paying down the principal.
Annual Percentage Rate aka APR
Annual Percentage Rate (APR) is a measure of the cost of credit, expressed as a yearly rate. This rate is typically higher than the note rate because it takes into account closing costs. This is one way to compare loan programs offered by different lenders. Caution: the APR is sometimes computed differently by different lenders and can be misleading.
Appraisal is the process of determining how much a home is worth—its market value. It also refers to the report establishing the value. Appraisals may be required for any type of property, including single-family homes, apartment buildings and condominiums, office buildings, shopping centers, industrial sites, and farms. Appraisal fees are usually included in closing costs. See Appraised Value.
The appraised value is the home’s current market value as determined by a licensed appraiser. See Appraisal.
Appreciation is the increase in the value of an asset (such as real estate) over time. The increase can occur for a number of reasons including increased demand or weakening supply, or as a result of changes in inflation or interest rates. This is the opposite of depreciation, which is a decrease over time.
Assessed valuation is used to determine the value of a residence for tax purposes and takes comparable home sales and inspections into consideration. The Assessed Value is the price placed on a home by the corresponding government municipality to calculate property taxes.
Balloon Loan or Balloon Payment
A balloon loan is a mortgage that requires a larger-than-usual one-time payment, sometimes called a balloon payment (typically more than two times a regular periodic payment), at the end of the term.
A borrower, also known as an obligor, is a person who has applied, met specific requirements, received a monetary note from a lender, and signed a promissory note agreeing to pay the lien holder back. The borrower is legally responsible for repayment of the loan in a specified time frame, as well as any additional fees, interest, etc., as agreed
Cash Out Refinancing
Cash Out Refinancing is simply borrowing money from the equity in your home based on its value. For example, if your home is valued at $100,000 and your current mortgage balance is $50,000, you may be able to take $20,000 cash out of the equity in your home when you refinance, resulting in a new mortgage balance of $70,000. Learn more on our Home Refinance page.
Closing is the final step in carrying out a real estate transaction. The closing date is set during the negotiation phase, and is usually several weeks after the offer is formally accepted. On the closing date, the parties consummate the purchase contract, and ownership of the property is transferred to the buyer. When refinancing it is when the new loan is completed and conummated.
Learn more on our Closing Your Loan page.
Also called a Settlement Agent, a Closing Agent is a person who represents a buyer and handles the closing and the legal transfer of title and ownership from the seller to the buyer.
See Closing and Closing Costs.
Closing costs are fees charged by lenders and related to the financing of the home. Closing costs vary widely based on the property and its location. Closing costs can include fees for running a credit report, paperwork processing, attorney services, inspection, appraisal, surveys, title insurance, title search, escrow deposit, recording, and underwriting, in addition to other fees.
See Closing and Closing Agent. Learn more on our Closing Costs & Fees page.
Combined Loan-to-Value or CLTV is a ratio formula used by lenders to determine the risk of default by prospective home buyers when more than one loan is used.
A co-signer is a person who is the guarantor of the contract, especially a promissory note. A co-signer is also known as a surety. The cosigner may be held equally responsible for the payment of the debt or may be required to pay only upon the failure of the original obligor (borrower) to do so. Co-signing agreements may vary based on state law and the terms of the agreement.
Combined Loan-to-Value Ratio
A commitment letter is a formal and legally binding document issued by a lender to a loan applicant to inform them that the loan has been approved. It offers the loan to the applicant based on specific terms and conditions.
A conforming loan is a mortgage loan that meets GSE (Fannie Mae and Freddie Mac) guidelines. The conforming loan limit is based on average home prices and the maximum loan amount Fannie Mae and Freddie Mac will purchase and/or guarantee. Currently the limit is $424,000 ($636,000 in Alaska). The conforming limit is set every year by the Office of Federal Housing Enterprise Oversight (OFHEO). Loans that exceed the conforming loan limit are called Jumbo loans.
Visit our Jumbo Loan page to learn more.
A construction loan is a type of loan specifically designed for construction projects. It has features such as interest reserves, where repayment ability may be based on something that will only happen when the project is built.
Consumer Protection Act
A conventional mortgage is a loan that is not guaranteed or insured by any government agency, including the Federal Housing Administration (FHA) or the Department of Veterans Affairs (VA). It is typically fixed in its terms and rate.
A convertible ARM is an adjustable rate mortgage that can be switched to fixed-rate loans for a fee. This type of loan usually requires a slightly higher interest rate on the ARM, on the fixed-rate loan, or both.
A borrower’s credit history is forwarded by lenders and creditors to a credit bureau. The credit bureau matches the name, address and other identifying information on the credit applicant with information retained by the bureau in its files. This information, available in a report with a credit score is called a credit report. It is used by lenders such as credit card companies to determine an individual’s credit worthiness or ability to repay a loan or other debt.
Learn more about credit reports on the Your Credit Report page.
A deed is a legal document by which property or legal rights are conveyed.
Deed of Trust
A deed of trust, or trust deed, is a legally binding document by which the legal title of real property is transferred to a trustee, which holds it as security for a loan between a borrower and lender. The equitable title remains with the borrower. The borrower is referred to as the trustor, while the lender is referred to as the beneficiary of the deed of trust. If the borrower defaults on the loan, the trustee has the power to foreclose on the property on behalf of the beneficiary, known as the “power of sale.”
See Deed and Power of Sale Foreclosure.
Deed of Trust Foreclosure
In a Deed of Trust foreclosure, the title-holding trustee is authorized to sell the property for the beneficiary (lender). There are no court proceedings and the process is usually significantly faster for this type of foreclosure.
See Deed and Deed of Trust.
Deed-in-Lieu (DIL) of Foreclosure
A Deed-In-Lieu of Foreclosure, also known as a Mortgage Release, is the voluntary transfer of property to the mortgage holder in exchange for release from the mortgage loan and payments.
A default can occur when a borrower fails to perform a legal or contractual duty. A borrower’s failure to pay a loan may result in a default. A homeowner at risk of default should contact the servicer immediately to discuss options.
A deficiency is the difference between the amount owed on a loan, such as a mortgage loan, and the total amount received/collected at the closing of a loan.
See Deficiency Judgment.
A deficiency judgment is an unsecured money judgment against a borrower whose mortgage foreclosure sale did not produce sufficient funds to pay the underlying promissory note, or loan, in full. A deficiency judgment is a court judgment that is a public record of the amount owed and by whom, and may include loan principal, accrued interest and attorney fees, minus the amount the lender bid at the foreclosure sale.
See Deficiency and Promissory Note.
Delinquent or Delinquency
A borrower is considered delinquent or in delinquency when he or she is late or overdue on a payment, such as income taxes, a mortgage, automobile loan or credit card account.
Compare to Default.
Depreciation is the decrease in an asset’s or property’s value due to economic or market conditions.
When financing a home, you will receive a disclosures package that includes documents to help explain the true cost of borrowing, such as the Loan Estimate and Closing Disclosure.
See eDisclosures Package and eDocuments.
Discount points, also called points, is money you pay up front to “buy down” (or lower) the interest rate on your home loan. One discount point will cost you 1% of the loan amount.
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, commonly referred to as Dodd-Frank, made changes to federal financial regulatory agencies in an effort to promote financial stability, improve accountability and transparency, and protect consumers from abusive financial services practices, among other objectives.
Down Payment is the initial upfront portion of the total amount due, usually given in cash at the time of finalizing a purchase of property. A loan, or the amount in cash, is then required to make the full payment.
Due Diligence is the attention and care that a prudent person is legally expected to exercise in the examination and evaluation of risks affecting a business transaction.
Earnest Money Deposit
An Earnest Money Deposit is made by a potential buyer to a seller to show the buyer’s good faith in a transaction. That’s why it’s sometimes called a Good Faith Deposit. In real estate purchases, a buyer makes an Earnest Money Deposit to hold a property longer while seeking financing. A seller and buyer typically hold Earnest Money jointly in a trust or escrow account. If the buyer defaults on the purchase agreement, the seller usually keeps some or all of the deposit.
The Equal Credit Opportunity Act, or ECOA, imposes rules and standards that govern all aspects of the loan process. Specifically, the ECOA makes it unlawful for a financial institution employee to discourage anyone from applying for a loan or to discriminate, on a prohibited basis, against any loan applicant.
An eDisclosures Package is an electronic version of important disclosures related to a real estate transaction. It includes important disclosures such as the TILA RESPA Integrated Disclosure (TRID) that you can sign electronically on a site. TRID is an acronym for TILA (Truth in Lending Act) RESPA (Real Estate Settlement Procedures Act) Integrated Disclosure. For most closed-end loans, two new forms replace the old Good Faith Estimate (GFE), Settlement Statement (HUD-1), and TILA Disclosure. The first form, the Loan Estimate, is designed to provide disclosures that will help you understand the key features, costs, and risks of the mortgage loan for which you are applying. We will provide you a Loan Estimate no later than three business days after you submit your loan application. The second form, the Closing Disclosure, is designed to provide disclosures that will help you understand all of the costs of the transaction. We will provide you a Closing Disclosure at least three business days before you close your loan.
See Disclosures Package.
Like eDisclosure Package, eDocuments refer to important loan documents such as the appraisal that can be viewed or downloaded from a website.
See eDisclosure Package.
Equitable title is the right to obtain full ownership of property, while another party maintains the legal title to the property. When a contract for the sale of land is executed, equitable title passes to the buyer. When the conditions on the sale contract have been met, legal title passes to the buyer in what is known as closing.
Equity is the monetary value of a property or business beyond any amounts owed on it in mortgages, claims, liens, etc. It is the difference between the appraised value of your home and the outstanding principal balance on your mortgage. The amount of equity you have in your home is an important factor lenders consider when you refinance your mortgage.
Escrow is the payment made each month to the lender that the lender uses to pay the taxes and insurance due on your home each year. Your lender may require you or you may choose to set up an escrow account when you close your loan. If so, your lender will add payments for taxes and insurance to your monthly mortgage payment and hold these payments in the escrow account for you. When your taxes and insurance are due each year, your lender will pay them for you from your escrow account.
See Escrow Account, Escrow Analysis Disclosure Statement, Escrow Balance, Escrow Cushion, and Escrow Payment. Learn more about escrow at Understanding Escrow.
Lenders establish an Escrow Account, also known as an Impound Account, to hold money collected from a borrower in order to pay homeowner’s insurance and property taxes when they’re due. An escrow account protects the lender from property loss due to uninsured damage or foreclosure by government for nonpayment of taxes. When the escrow account is set up during the closing process, two months worth of payments are typically required by the lender.
See Escrow, Escrow Analysis Disclosure Statement, Escrow Balance, PITI, Escrow Cushion, and Escrow Payment. Learn more at Understanding Escrow.
Escrow Analysis Disclosure Statement
As required by Federal law, lenders review borrower escrow accounts annually and send borrowers an Escrow Analysis Disclosure Statement with the details of their accounts. If there is a shortage (i.e., the borrower owes money to the account), the lender usually allows the borrower to spread out additional escrow into the payments over the next year. If escrow was overpaid, the difference is reimbursed to the borrower.
See Escrow, Escrow Account, Escrow Balance, Escrow Cushion, and Escrow Payment. Learn more at Understanding Escrow.
The Escrow Balance is the amount left in an escrow account at the end of the month.
See Escrow, Escrow Account, Escrow Balance, Escrow Cushion, and Escrow Payment. Learn more at Understanding Escrow.
An escrow deficiency is a negative balance in an escrow account due to more funds being disbursed than have been collected at that point in time.
See Escrow, Escrow Account, Escrow Balance, Escrow Cushion, and Escrow Payment. Learn more at Understanding Escrow .
An escrow shortage occurs when there are not enough funds in the account to pay all the actual and projected payments from the account.
See Escrow, Escrow Account, Escrow Balance, Escrow Cushion, and Escrow Payment. Learn more at Understanding Escrow.
Escrow Surplus or Escrow Overage
An escrow surplus or escrow overage occurs when it has been overfunded beyond what is needed to pay all the actual and projected payments from the account.
See Escrow, Escrow Account, Escrow Balance, Escrow Cushion, and Escrow Payment. Learn more at Understanding Escrow.
The Fair & Accurate Credit Transactions Act of 2003 (the Fact Act), or FACTA, was enacted to reduce risk of identity theft and fraud.
Fair and Accurate Credit Transactions Act
Fair Debt Collections Practices Act
Fair Market Value
The Fair Debt Collection Practices Act or FDCPA is a consumer protection law establishing legal protections from abusive debt collection practices.
Federal Financial Institutions Examination Council
Federal Home Loan Mortgage Corporation
See FHLMC and Freddie Mac.
Federal Housing Administration
Federal Housing Finance Agency
Federal Trade Commission
Federal Financial Institutions Examination Council is a formal interagency body empowered to prescribe uniform principles, standards, and report forms for the federal examination of financial institutions by the Board of Governors of the Federal Reserve System (FRB), the Federal Deposit Insurance Corporation (FDIC), the National Credit Union Administration (NCUA), the Office of the Comptroller of the Currency (OCC), and the Consumer Financial Protection Bureau (CFPB), and to make recommendations to promote uniformity in the supervision of financial institutions.
The Federal Housing Administration, or FHA, provides mortgage insurance on loans made by FHA-approved lenders throughout the United States and its territories. FHA insures mortgages on single family and multifamily homes including manufactured homes and hospitals. ditech is an FHA-approved lender.
Learn more about FHA loans on ditech’s FHA Loan page.
Federal Housing Finance Agency is an independent regulatory agency responsible for the oversight of vital components of the secondary mortgage markets—the housing government sponsored enterprises of Fannie Mae, Freddie Mac and the Federal Home Loan Bank System.
See FNMA (Fannie Mae) and FHLMC (Freddie Mac).
Federal Home Loan Mortgage Corporation (FHLMC), also known as Freddie Mac, is a public government-sponsored enterprise (GSE) that buys mortgages on the secondary market, pools them, and sells them as a mortgage-backed security to investors on the open market. This secondary mortgage market increases the supply of money available for mortgage lending and increases the money available for new home purchases.
FICO stands for Fair, Isaac, and Company, which introduced the FICO® credit score model in 1989. The FICO score is the best-known and most widely used credit score model in the United States. It is used to provide an estimate of creditworthiness of a person, or the likelihood that a person will pay his or her debts. Some of the criteria that factor into the FICO score include payment history, debt burden, length of credit history, types of credit used, etc.
Learn more about FICO, credit and credit reports on Your Credit Reportitech’s page.
Financial Industry Regulatory Authority
The Financial Industry Regulatory Authority, or FINRA, is a non-governmental organization that regulates member brokerage firms and exchange markets. The government agency that acts as the ultimate regulator of the securities industry, including FINRA, is the Securities and Exchange Commission.
Fixed Rate Mortgage
Fair Market Value, or FMV, is the price that property would sell for on the open market. FMV is the price that would be agreed on between a willing buyer and a willing seller, with neither being required to act, and both having reasonable knowledge of any relevant facts.
See Assessed Value.
Federal National Mortgage Association, also known as Fannie Mae, is a government-sponsored enterprise (GSE). Fannie Mae was established to provide local banks with federal money to finance home mortgages in an attempt to raise levels of home ownership and the availability of affordable housing. The corporation’s purpose is to expand the secondary mortgage market by securitizing mortgages in the form of mortgage-backed securities (MBS), allowing lenders to reinvest their assets into more lending and in effect increasing the number of lenders in the mortgage market by reducing the reliance on locally-based savings and loan associations.
In forbearance, a mortgage company may allow a borrower to pay a portion of his or her regular mortgage payment, or in some cases, no payment at all, for a specific period of time. At the end of the forbearance period, the borrower must begin making regular payments as well as an additional amount to pay off the past-due amount.
A foreclosure is a proceeding by which a borrower’s rights to a mortgaged property may be removed if the borrower fails to live up to the obligations agreed to in the loan contract. The lender may be authorized to declare the entire debt due and owing and may seek to satisfy it by foreclosing. Foreclosure can be judicial (decided in the courts) or nonjudicial.
See Judicial Foreclosure, Nonjudicial Foreclosure, Power of Sale Foreclosure, Deed-in-Lieu Foreclosure, Cash for Keys, Loss Mitigation, and Deed in Trust Foreclosure.
Foreclosure by Power of Sale
See Power of Sale Foreclosure.
An FRM or Fixed Rate Mortgage, is a mortgage that has a fixed interest rate for the entire term of the loan.
Learn more on our Fixed Rate Mortgage page.
The stated mission of the Federal Trade Commission, or FTC, is to “prevent business practices that are anti-competitive or deceptive or unfair to consumers; to enhance informed consumer choice and public understanding of the competitive process; and to accomplish this without unduly burdening legitimate business activity.”
The full value of the property or market value must be assessed to determine the tax rate. If the property is not fully assessed, the tax rate may change once a full assessment is done.
GEM or Growing Equity Mortgage
A Growing Equity Mortgage, or GEM, is a fixed rate mortgage on which the monthly payments increase over time according to a set schedule. The interest rate on the loan does not change, and there is never any negative amortization.
GNMA, also known as Ginnie Mae, or the Government National Mortgage Association, is a GSE (government-sponsored enterprise), wholly owned by the government and part of the Department of Housing and Urban Development. The Ginnie Mae guarantee allows mortgage lenders to obtain a better price for their loans in the capital markets. Lenders then can use the proceeds to make new mortgage loans available to consumers.
Good Faith Estimate or GFE
A Good Faith Estimate, or GFE, (no longer in use) was a preapproval estimate of settlement charges, interest rates, and loan terms available to a borrower.
Government Sponsored Enterprise
GPM or Graduated Payment Mortgage
A Graduated Payment Mortgage, or GPM, is a fixed-rate mortgage on which the monthly payments increase over time according to a set schedule, with initial payments set below what a fully amortizing payment or interest-only payment would be, resulting in negative amortization.
See Fixed Rate Mortgage.
A GSE is a Government-Sponsored Enterprise, such as Fannie Mae, Ginnie Mae, and Freddie Mac.
See FHLMC,FNMA, GNMA.
The Home Affordable Refinance Program, or HARP, may help borrowers with loans held by Fannie Mae or Freddie Mac, refinance into a more affordable mortgage. Borrowers who are not behind on mortgage payments but have been unable to get traditional refinancing because of a decline in the value of their home may be eligible to refinance through HARP.
Home Equity Conversion Mortgage, or HECM, is FHA’s reverse mortgage program that enables homeowners to withdraw some of the equity in their home with limitations , or a single disbursement lump-sum payment at the time of mortgage closing.
Home Equity Line of Credit, or HELOC, is a line of credit extended to a homeowner that uses the borrower’s home as collateral. It’s an “open-end” line of credit that allows homeowners to borrow repeatedly against their home equity. It is usually secured by a second mortgage.
The Housing & Economic Recovery Act of 2008, or HERA, was designed primarily to address the subprime mortgage crisis, authorized the Federal Housing Administration to guarantee up to $300 billion in new 30-year fixed rate mortgages for subprime borrowers if lenders write-down principal loan balances to 90 percent of current appraisal value.
The Home Mortgage Disclosure Act (HMDA) requires many financial institutions to maintain, report, and publicly disclose information about mortgages.
A home inspection gives the buyer an impartial, physical evaluation of the overall condition of the home and items that need to be repaired or replaced. The inspection gives a detailed report on the condition of the structural components, exterior, roofing, plumbing, electrical, heating, insulation and ventilation, air conditioning, and interiors.
Home Loan Insurance
Home Mortgage Disclosure Act
A Home Warranty is an insurance policy to repair or replace major home systems or appliances, such as a dishwasher, stove, or air conditioning system.
Homeowners insurance, also called hazard insurance or home insurance, is property insurance that covers a private residence or house. Homeowners insurance can protect homeowners from losses of the house, its contents, loss of use, or other personal possessions of the homeowner. It may also include liability insurance for accidents or injuries sustained on the property or at the hands of the homeowner.
Learn more on the Homeowners Insurance page.
The U.S. Department of Housing and Urban Development, or HUD, is a government agency related to housing and development. Some programs supervised and enforced by HUD include Community Planning and Development, Federal Housing Administration (FHA), Public and Indian Housing, Fair Housing and Equal Opportunities, Ginnie Mae, and other interests.
See FHA and GNMA.
See Settlement Statement.
An Installment Loan is a loan that a borrower repays with a fixed number of periodic equal-sized payments.
Interest is a charge for the use of credit or borrowed money. It is also a charge expressed as a percentage per time unit of the sum borrowed or used.
See APR and Interest Rate.
Interest Adjustment Rate
See Adjustment Rate.
An interest rate is the rate at which interest is paid by a borrower for the use of money that they borrow from a lender. Specifically, the interest rate is a percentage of principal paid a certain number of times per period (usually quoted per year). A mortgage interest rate is the percentage of interest you pay a bank or financial company to have a home loan. Generally the lower the rate, the less you pay to the bank over time.
Interest Rate Cap
An Interest Rate Cap is the highest interest rate allowed on your adjustable rate mortgage. Your actual interest rate cannot be adjusted above this rate.
See Interest and Interest Rate.
An investment property is real estate property not occupied by the owner and from which the owner intends to earn income. The income can be in the form of rent, future resale of the property, or other earnings.
Judicial Foreclosure or Judicial Sale
A Judicial Foreclosure, sometimes called a Judicial Sale or Foreclosure by Judicial Sale, is the transfer of title to and possession of a debtor’s property to another party, in exchange for a price determined in proceedings that are conducted under a judgment or an order of court.
See Foreclosure and Nonjudicial Foreclosure.
A jumbo loan is a mortgage loan that may have high credit quality, but is in an amount above conventional conforming loan limits. Any mortgage for $424,101 ($636,001 in Alaska and Hawaii) or more is considered a non-conforming, or jumbo, loan.
See Non-Conforming Loan and Conforming Loan. Learn more on Jumbo Loan page.
Late fees may be assessed when a borrower’s payment is received after any grace period following the due date.
Learn about other Common Fees & Costs.
Lender Placed Insurance or LPI
A Lender Placed Insurance policy (also called LPI or force-placed insurance) is placed by the lender on a borrower’s home in the case of a insurance payment lapse or insufficiency in the borrower’s own property insurance.
A lien is a legal claim that a person or entity has on the property of another person until a debt has been paid back.
Your Loan Amount is the amount of money you borrow to finance a property. If you are buying, subtract your down payment from the home’s sale price to get your loan amount. If you are refinancing, your loan amount will be the current balance on your mortgage plus any cash you want to take out (assuming there is sufficient equity in the property).
See Loan Balance.
The Loan Balance is the amount owed on a loan or mortgage. See Loan Amount and Outstanding Loan Balance.
Loan servicing is the process by which a company (mortgage bank, servicing firm, etc.) collects interest, principal and escrow payments from a borrower.
Loan to Value Ratio
A mortgage rate Lock Period, or lock-in period, is the lender’s commitment to hold a certain interest rate at a certain number of points for the borrower, usually for a specified period of time.
See Rate Lock and Rate Lock Commitment.
The LTV or loan to value ratio is a financial term used by lenders to express the ratio of a loan to the value of an asset purchased. For real estate, the LTV ratio is the loan amount divided by the value of the home. It is typically expressed as a percentage. For example: an $80,000 loan on a home appraised at $100,000 results in an LTV of 80%.
Maturity or Maturity Date
A loan’s Maturity or Maturity Date refers to the final payment date at which point the principal and all remaining interest comes due. Loans without a maturity date are ongoing indefinitely. For example, a perpetual stock is a financial instrument without a maturity date.
Mortgage Insurance, also known as a mortgage guarantee, MI, or home-loan insurance, protects lenders or investors from losses due to the default of a mortgage loan. A mortgage insurance policy may also be known as a mortgage indemnity guarantee, or MIG.
See Mortgage Insurance Premium and PMI.
A mortgage insurance premium (MIP) is the monthly insurance that your lender requires for a government backed loan like the FHA and VA if your down payment or equity is 20% or less than the value of the home. This insurance protects the lender in case you default on your loan.
See MI, FHA and VA.
Mortgages are used by individuals and businesses to make large real estate purchases without paying the entire value of the purchase up front. A mortgage is actually made up of several parts – the collateral used to secure the loan, principal and interest payments, taxes and insurance.
Mortgage / Deed of Trust
This legally binding document states that you pledge your house as security for repayment of your home loan. You are agreeing to give up your property to the lender if you cannot make your mortgage payments or otherwise default on your home loan.
Mortgage Insurance Premium
Your mortgage payment is made up of principal, interest, taxes, and insurance (often referred to as PITI). If you have Private Mortgage Insurance (PMI) that will also be included in your mortgage payment.
See PITI and PMI.
Voluntary transfer of a property from a homeowner to the mortgage owner, in exchange for release from the loan and payments, is a Mortgage Release.
A Mortgage Term refers to the number of years over which you would repay a mortgage loan if he or she made all the scheduled monthly principal and interest payments. The most common terms for mortgages are 15 years and 30 years.
A mortgagee is a person or organization (such as a bank) that lends money to someone for buying or refinancing property. It can also mean a person or organization that holds a mortgage (such as a bank or loan servicer).
See Mortgage and Mortgagor.
A Mortgagor is a person who borrows money in order to buy or refinance property. It can also mean a person who takes out a mortgage in order to buy property.
See Borrower or Obligor.
Negative amortization is an amortization schedule in which the loan amount increases because the interest is not fully paid in each payment, and the amount of interest you do not pay is added to the principal balance.
See Amortization and Amortization Schedule.
A Notice of Incomplete Application Letter, or NOIA, is a form sent to the buyer that indicates missing or incomplete loan application information. In order for the lender to complete the application process, the borrower must submit all required information.
A Non-Conforming Loan is a loan that does not meet typical bank criteria for funding.
See Conforming Loan.
In most cases, in states that allow Nonjudicial Foreclosure, it is not necessary for a lender to bring a case to court in order to foreclose on a property. This often makes the foreclosure process faster and less costly.
See Judicial Foreclosure, Foreclosure.
Note or Mortgage Note
See Promissory Note.
Notice of Incomplete Application Letter
Notice of Periodic Adjustment
The Notice of Periodic Adjustment is the official notification of interest and payment changes to an Adjustable Rate Mortgage.
The process of applying for a loan and all the necessary steps up to approval or decline is called Origination. Blisss Life Enterprises provides mortgage originations to customers.
Outstanding Loan Balance
A loan balance is the amount left to pay on a loan. An Outstanding Loan Balance usually refers to a past due amount and can indicate one or more loan payments or the loan balance in total.
See Loan Amount and Loan Balance.
Partial Claim Loan
A partial claim is an interest-free loan guaranteed by HUD and made to a homeowner who is delinquent on their FHA loan. The loan is made in an amount needed to reinstate their mortgage. The loan is made under the stipulation that the homeowner will pay it back when they pay off their first mortgage or when the property is sold.
See Delinquent or Delinquency and HUD.
A payoff is the final payment on a mortgage, loan, or other debt that completes the repayment schedule and releases the obligation. The outstanding principal balance may not reflect the full payoff amount required to release the loan.
PITI stands for the four segments of most mortgage payments: Principal, Interest, Taxes, and Insurance.
See Escrow Account and Escrow Payment.
Private Mortgage Insurance, or PMI, is an insurance policy required when homeowners pay less than 20% of a home’s purchase price in the down payment. PMI protects the lender against loss if the borrower defaults on the mortgage loan.
Learn more about PMI on our Understanding Private Mortgage Insurance or PMI page.
A Point is the rebate or fee equal to 1% of a loan amount or principal. There are generally two types of points in play at a mortgage closing. Origination points are used as compensation for the lender. Discount points enable a borrower to prepay interest; each point purchased typically lowers the mortgage interest rate by .25%.
See Closing and Discount Points.
Power of Attorney
Power of Attorney, or POA, is the written authorization that gives a person the right to act for or represent another person in business, law, or other matters.
Power of Sale Foreclosure
Power of Sale Foreclosure may also be called Foreclosure by Power of Sale. This foreclosure process requires sale of the property and does not take place under court supervision. Different states may have different laws pertaining to Power of Sale Foreclosure.
See Foreclosure and Deed of Trust Foreclosure.
Pre-paid interest is interest you pay from the day you close your loan to the first day of the next month. If you close on the 20th of a 30-day month, you’ll pay 10 days of pre-paid interest before you make your first mortgage payment.
Some lenders charge you a penalty fee if you pay off your loan before the end of the term such as paying off your mortgage in a lump sum payment or paying more in your monthly mortgage payments.
Pre-Qualification is an estimate of how large a mortgage a borrower can afford, based on his or her financial circumstances of the previous 2 years. The pre-qualification process helps borrowers determine the size of the mortgage loan they are likely to be approved for, but it is not a commitment to approve a loan.
Some loan and/or mortgage terms include a penalty for prepaying toward the principal ahead of the repayment schedule.
In a loan, the principal means the original loan amount. Interest is calculated based on the principal.
See Loan Amount, Interest and Loan Balance.
The amount of principal included in and owed on a loan payment.
See Principal, Loan Amount, and Loan Balance.
Private Mortgage Insurance
The promissory note is a document containing the promise to repay the amount borrowed and the terms for repayment. It also includes the borrower’s name(s), the address of the property, the interest rate and whether it’s fixed or adjustable, the fee for any late payments, the total loan amount, and the loan term. The lender holds the promissory note while the loan is outstanding. When the loan is fully paid off, the note will be marked as paid in full and returned to the borrower.
See Note or Mortgage Note.
The property value is the home’s market price, if you are purchasing, or its current fair market value if you are refinancing. If you don’t know the property value, you can get a general estimate by using the sales prices of similar homes in your area.
Quit Claim Deed
A Quit Claim Deed is a legal instrument by which the owner of a piece of real property, called the grantor, transfers any interest to a recipient, called the grantee.
Rate Commitment Option
Rate Lock or Mortgage Rate Lock
A Rate Lock is a guarantee to offer a borrower a specific interest rate and points.
See Interest, Lock Period, and Points.
An RCO or Rate Commitment Option is the period of time and option to float or lock an interest rate during the borrower’s application process. A typical RCO is a 60-day lock on the interest rate.
See RCO Expiration Date, Lock Period, and Rate Lock.
RCO Expiration Date
The RCO Expiration Date is the date that the rate commitment option expires. In some cases, the RCO can be extended for an additional charge.
See RCO, Lock Period, and Rate Lock.
Real Estate Owned
Real Estate Settlement Procedure Act
Refinancing or Refinance means to repay an existing loan on a property from the proceeds of a new loan on the same property.
Learn about refinancing on our Home Refinance page.
The remaining balance on a mortgage or loan is the total amount that a borrower owes on a loan at any given time.
See Amortization, Loan Balance, and Remaining Term.
The remaining term is the amount of time remaining until a loan is completely paid in full. This can be calculated by subtracting the number of monthly payments that have been applied from the original amortization term (in months).
See Term, Amortization, Amortization Schedule, and Remaining Balance.
A Real Estate Owned property or REO property refers to property owned by the lender after unsuccessful sale at a foreclosure auction.
The Real Estate Settlement Procedure Act of 1974, or RESPA, protects consumers during a mortgage transaction. For example, RESPA limits how much a lender may require a borrower to pay in advance to an escrow account. In 2011, responsibility for enforcement of RESPA was transferred from HUD to the Consumer Financial Protection Bureau.
The Secure and Fair Enforcement for Mortgage Licensing Act or SAFE Act of 2008, enhanced consumer protection and reduced fraud by setting minimum standards for the licensing and registration of state-licensed mortgage loan originators.
SCRA stands for Servicemembers Civil Relief Act of 2003. The SCRA specifies that a person called to active duty in the military, who has incurred a debt prior to active duty status, may be afforded financial relief and a number of protections.
Secondary income is any income from sources other than your job or primary source of income, such as alimony, child support or separate maintenance agreements (not required if you do not wish to have that income considered).
Secure and Fair Enforcement for Mortgage Licensing Act
See SAFE Act.
Servicemembers Civil Relief Act
A Settlement Statement (no longer in use) was a summary of all the fees and charges that both the homebuyer and seller agreed to during the settlement process of a housing transaction. The Real Estate Settlement Procedures Act (RESPA) required that a government-issued settlement statement called HUD-1 be used as the standard real estate settlement form for all U.S. transactions involving a federally-insured lender. The HUD-1 has been replaced by the Closing Disclosure.
See RESPA, HUD-1, and Closing.
A Short Sale is an alternative to foreclosure proceedings and is any sale of real estate that generates proceeds that are less than the amount owed on the property. When a mortgage or loan servicing company agrees to a Short Sale, the borrower is allowed to sell the home and pay off all (or a portion of) the mortgage balance with the proceeds of the sale.
See Loss Mitigation, Foreclosure, and Deed-in-Lieu of Foreclosure.
A borrower’s mortgage is usually the primary lien on a property, held by the mortgage lender. Other liens on the property are usually subordinate to this one, with the exception of tax liens, which legally can become more senior to the first mortgage lien. The most common kind of subordinate lien is a second mortgage.
Supplemental insurance protects against damages your homeowner’s insurance policy doesn’t cover, such as flood, natural disasters, neglect, etc.
Third Party Service Provider
A third party service provider is an outside company you or your lender hires to complete a service required to close your loan. The associated cost is called a third party fee.
TILA refers to the Truth in Lending Act (TILA) of 1968. This law requires lenders to disclose in a standardized format the terms and costs associated with a loan to borrowers. TILA also provides consumers with protections related to credit card, home equity, and certain higher-priced mortgage loans (HPMLs).
A title is a legal document evidencing a person’s right to or ownership of a property.
Total Interest Percentage
The total amount of interest that you will pay over the loan term, expressed as a percentage of your loan amount.
TRID is an acronym for TILA (Truth in Lending Act) RESPA (Real Estate Settlement Procedures Act) Integrated Disclosure. The Consumer Financial Protection Bureau issued a rule under TRID that integrated TILA and RESPA mortgage loan disclosures into two new forms: the Loan Estimate and the Closing Disclosure.
In a Deed of Trust, the trustee is a third party (the other two being the lender and the borrower) who holds the legal title of a property as security for a loan between a borrower and lender.
See Deed of Trust Foreclosure.
In a Deed of Trust, the borrower is referred to as the trustor.
See Deed of Trust Foreclosure.
U.S. Department of Housing and Urban Development
Upfront Mortgage Insurance Premium (UMIP)
An upfront mortgage insurance premium (UMIP) is a one time insurance fee required for a government backed loan like the FHA if your down payment or equity is 20% or less than the value of the home. This insurance protects the lender in case you default on your loan.
As a benefit to U.S. servicemembers, VA Home Loans are provided by private lenders, such as banks and mortgage companies. The Department of Veteran’s Affairs (VA) guarantees a portion of the loan, enabling the lender to provide borrowers with more favorable terms. If you are a military service member, veteran or surviving spouse of a veteran, you may qualify for a VA loan. Advantages include no down payment requirement and an allowance for less-than-perfect credit.
Learn more on our VA Loan page.
A Warranty Deed is commonly used to transfer interest in a property or land to a new owner in exchange for an agreed upon sale price. A warranty deed guarantees the buyer that the property is free of debt or liens and that the seller has the legal right to sell it.