A
Adjustable-Rate Mortgage (ARM)
A type of mortgage in which the interest rate on the note varies throughout the life of the loan. The interest rate may be fixed for a period of time (i.e. introductory rate) after which the rate adjusts periodically based on an index. When the loan adjusts, monthly payments can go up or down, depending on current rates. Also referred to as a variable-rate mortgage.
Amortization
Repayment of a mortgage debt with periodic payments of both principal and interest. The Amortization schedule is the amount you pay each month in principal and interest to ensure your loan is repaid by the end of your loan's term.
Annual Percentage Rate (APR)
The APR expresses the cost of the loan on a yearly basis as a percentage. It includes interest charges as well as points and other costs.
Appraisal
An estimate of your property's fair market value as determined by an independent Appraiser. The valuation is based on a variety of factors, including recent sales in the area and current market conditions. Also referred to as a valuation.
Appreciation
An increase in value, the opposite of depreciation.
B
Balloon Mortgage
A mortgage loan with initially low interest payments, but that requires one large payment due upon maturity (for example, at the end of five or seven years).
Borrower
The person who receives a mortgage with the obligation to repay the loan's principal and interest.
Broker
An individual employed on a fee or commission basis as agent to bring buyers and sellers together and assist in negotiating contracts between them.
Buydown
A buydown occurs when one party pays an initial lump sum in exchange for a lower interest rate on the mortgage.
C
Cash Out Refinance
When the principal amount of a new mortgage involved in refinancing is greater than the principal amount outstanding of the existing mortgage being refinanced, and all or a portion of the equity is converted to cash.
Certificate of Eligibility (COE)
A document issued by the Veterans Administration which verifies a veteran's eligibility for a VA loan.
Closing
The conclusion of the real estate transaction which includes the delivery of the deed and security instrument, the signing of the note and other legal documents and the disbursement of funds necessary to consummate a sale or loan transaction. Also referred to as a settlement.
Collateral
Property pledged as security for a debt, such as the real estate as security for a mortgage.
Collections
The efforts a mortgage company takes to collect past due payments.
Conventional Loan
A mortgage not insured or guaranteed by a government agency such as the Department of Veteran Affairs (VA), the Federal Housing Administration (FHA), or the Department of Agriculture (USDA).
Convertible ARM
An Adjustable-Rate Mortgage loan that can be converted into a fixed-rate mortgage during a certain time period.
Credit Report
A summary of your credit history, including your previous and current accounts and payment history.
D
Debt-to-Income Ratio (DTI)
A percentage calculated by dividing a borrower's total monthly debt payments (i.e. rent or mortgage payments, other loans, credit cards, etc.) by gross monthly income.
Deed
A legal document under which ownership of a property is transferred or conveyed from one party to another.
Deed-in-Lieu of Foreclosure
The transfer of title from a borrower to the mortgage company to satisfy the mortgage debt and avoid foreclosure, also called a voluntary conveyance.
Default
A borrower is in default when they fail to meet the terms of their loan agreement. Usually this is based on failure to make payments on time.
Deficiency Balance
The difference between what a foreclosed home sold for and the remaining mortgage balance. The mortgage company may require the borrower to pay the amount of the deficiency balance.
Deferred Payments
Payments that are authorized to be postponed as part of a workout process to avoid foreclosure.
Delinquency
The failure of the borrower to make timely payments specified under a loan agreement.
Department of Veterans Affairs (VA)
The federal agency that oversees veteran services including home financing programs.
E
Entitlement
The amount the VA will repay the lender if the borrower defaults on a VA loan.
Equity
The net value of an asset. In the case of real estate, it would be the difference between the present value of the property and mortgage amount on that property.
Escrow
The deposit by a borrower with the lender to pay property taxes, homeowners insurance, and mortgage insurance when they become due. In some parts of the country, escrow of taxes and insurance premiums are called impounds or reserves.
Escrow Account
The segregated trust account in which escrow funds are held.
Escrow Analysis
A periodic review of escrow accounts to make sure there are sufficient funds to pay the taxes and insurance when they become due.
F
Fixed-Rate Mortgage
A mortgage with an interest rate that remains the same for the entire loan term.
Forbearance
The act of refraining from taking legal action even though the mortgage is in arrears. A forbearance is usually granted when a homeowner makes satisfactory arrangements to bring the overdue mortgage payments up to date.
Foreclosure
A legal process where the lender takes possession of a property after a borrower has not met the mortgage's terms of repayment. Also known as a repossession; often homes are re-sold to pay off borrowers' debt.
Foreclosure Prevention
Steps by which the mortgage company works with the homeowner to find a permanent solution to resolve an existing or impending loan delinquency.
Funding Fee
A fee paid directly to the VA to help offset losses on defaulted loans.
G
Gross Monthly Income
The total amount of income before taxes and expenses are deducted. This amount may include overtime pay, bonuses, commissions and income from dividends or interest, provided that the individual can show consistent history of receiving such income.
Guaranty
For VA loans, the amount of money the Department of Veteran Affairs will reimburse a lender upon the default of a VA mortgage.
H
Hardship
A hardship is the reason why a homeowner is having trouble making their mortgage payments, such as job loss, medical emergency or illness, divorce, etc. A hardship may be short term (less than six months) or long term (more than six months). When contacting the mortgage company or a housing counselor for assistance, homeowners may be required to demonstrate/explain any hardship they are experiencing.
Hazard Insurance
Insurance coverage which provides compensation to the insured in case of property loss or damage.
Home Equity Line of Credit
An open-end mortgage that permits borrowers to obtain cash advances based on an approved line of credit.
Homeowners Insurance
Insurance carried by the homeowner to protect the dwelling against fire and other hazards.
I
Inspection
An assessment of a property's condition prior to sale. Typically performed by a professional home inspector.
Interest Rate
The cost a lender charges you to borrow money.
Interest-Only Mortgage
A mortgage where the homeowner pays only the interest on the loan for a specified amount of time during an initial period.
Interest Rate Reduction Refinance Loan (IRRRL)
A refinance for a VA loan to a new VA loan to lower the interest rate.
Investment Property
A property used for the purpose of generating income or gaining profit from the resale or tax write-offs.
Investor
The owner of the loan on a property.
J
Jumbo Loan
A mortgage which is larger than the limits set by Fannie Mae and Freddie Mac.
L
Lien
A claim on a property used as collateral against a debt.
Loan-to-Value Ratio (LTV)
A percentage calculated by taking the mortgage amount and dividing by the appraised value or sales price.
Loss Mitigation
When the homeowner and the mortgage company are working together to determine the appropriate option/workout solution to bring the mortgage current and avoid foreclosure.
M
Modification
Any change to the terms of a mortgage loan, including changes to the interest rate, loan balance, or loan term.
Mortgage
A loan used to purchase or refinance a home. The term also describes the legal document that pledges property to the mortgage company as security for the repayment of the loan. Learn more about mortgages.
Mortgage Company
A mortgage company underwrites and issues (originates) home loans. The mortgage company or lender who originated the mortgage may or may not service the loan. When the mortgage company services the mortgage, they do the following: collect the homeowner’s mortgage payments, pay taxes and insurance, generally manage your escrow accounts (i.e., they “service” the loan), and provide customer service and support.
Mortgage Insurance
Insurance that protects the mortgage company against losses caused by a homeowner's default on a mortgage loan. Mortgage insurance (or MI) typically is required if the homeowner's down payment is less than 20% of the purchase price.
Mortgage Release (Deed-in-Lieu of Foreclosure)
The transfer of title from a homeowner to the mortgage company to satisfy the mortgage debt and avoid foreclosure, also called a Deed-in-Lieu of Foreclosure or a voluntary conveyance.
Mortgagee
A lender to whom property is conveyed as security for a loan.
Mortgagee Clause
A clause in property insurance policies that protects the lender from incurring financial losses in cases where the mortgage property becomes damaged. This clause creates a separate contract between the mortgagee and the insurer. It requires the insurer to guarantee insurance payouts to the lender when any claims covered by the property insurance policy are made.
Mortgagor
One who borrows money, typically a homeowner.
N
Net Tangible Benefit
Net tangible benefit is the financial benefit a borrower receives by refinancing. This may include, among other things, a lower interest rate, a reduction in the monthly principal and interest payment, and elimination of monthly mortgage insurance. Certain states and investors require that the borrower receive a net tangible benefit when refinancing their existing mortgage.
O
Origination Fee
The fee lenders charge to originate the mortgage. Unlike a discount fee or "points" this fee does not impact the mortgage interest rate.
P
PITI
Principal, interest, taxes, and insurance are the components of a mortgage payment.
Pre-foreclosure Sale
The process in which a mortgage company works with a delinquent homeowner to sell the house by a real estate agent prior to the foreclosure sale. The sale price is less than what is owed on the mortgage.
Prequalification
The evaluation of a potential borrower's financial status to determine the size and type of mortgage available.
Prime
Mortgages provided to those with good credit scores, a history of stable income, low debt ratios, and ample down payment.
Principal
The amount of money borrowed from the lender or the part of the loan’s balance still owed to the lender, excluding interest.
Private Mortgage Insurance (PMI)
This insurance protects the lender against financial loss by a borrower defaulting on the mortgage. Often required on mortgages with a down payment below 20% (different guidelines apply to FHA and VA loans). PMI is added to the monthly payment.
R
REALTOR®
Real estate agents that belong to the National Association of REALTORS®. Real estate agents are licensed and earn a commission when representing home sellers and buyers in real estate transactions.
Refinance
The process of paying off one loan with the proceeds of a new loan using the same property as security. A refinance is usually done to lower the interest rate and monthly payment or access cash from the equity in the home.
Repayment Plan
A homeowner promises to pay down past-due amounts on a mortgage over a specified time period while still making regular monthly payments.
S
Seasoning
Seasoning refers to the minimum period of time you must wait before refinancing your existing loan. Seasoning can also refer to the period of time the borrower has owned their home or the length of time the borrower has had their existing mortgage. You must often wait a certain amount of time before refinancing your existing loan. This is known as the seasoning period.
Servicer
After a mortgage loan closes, the loan servicer collects the payments, manages escrow accounts, pays escrow taxes and insurance, and manages delinquent payments.
Short Sale
An alternative to a foreclosure where the mortgage company works with a homeowner who can no longer afford to make mortgage payment on a home that is worth less than they owe. In a short sale, the homeowner sells the home for less than they owe and the lender agrees to accept this amount based on a showing of financial hardship.
Streamline
A type of refinance that allows a borrower to reduce their interest rate with less documentation requirements. The two primary streamline refinance products are VA Interest Rate Reduction Refinance Loans (IRRRL) and FHA Streamline Refinance loans.
T
Title
Written evidence of the right to or ownership interest in property.
V
VA Loan
A mortgage loan guaranteed by the U.S. Department of Veteran Affairs.
Voluntary Conveyance
The transfer of title from a borrower to the mortgage company to satisfy the mortgage debt and avoid foreclosure; also called a "Deed-in-Lieu of Foreclosure."
W
Workout
An alternative action to foreclosure for the benefit of the lender and borrower. Includes loan modification, short sales, and various forms of forbearance. Also called restructure.