Mortgage Glossary

Buying a new home is an exciting time, but making sense of all the terminology can leave even seasoned homebuyers feeling a little confused. To get the best mortgage deal, you need to be able to speak the language of mortgage lenders. Here’s a quick overview of some common mortgage terms to help you get started. Italicized phrases are defined in this mortgage glossary.

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• a

• Abstract of Title
  A document that shows you the history of ownership for the property. - Read More
• Acceleration Clause
  A provision that lets the lender demand payment in full if you miss a payment or default on(...) - Read More
• Accrued Interest
  Interest on the loan that hasn’t been paid yet. - Read More
• Additional Principal Payment
  Extra money, over and above your scheduled payment, paid during your loan period, that’s(...) - Read More
• Adjustable-Rate Mortgage
  When your mortgage interest rate varies in accordance with certain market indices. Typically,(...) - Read More
• Affordability Analysis
  An analysis of various factors — including your income, existing debt, location of the(...) - Read More
• Amortization
  Your monthly payment plan. - Read More
• Amortization Term
  The length of time, expressed in months, that it takes you to pay off your mortgage. - Read More
• Appraisal
  The estimated value of the house, as determined by a third-party professional who has(...) - Read More
• ARM
  When your mortgage interest rate varies in accordance with certain market indices. Typically,(...) - Read More
• Assumable Mortgage
  A type of contract that allows new buyers to take over the existing mortgage, provided they(...) - Read More

• b

• Back-End Ratio
  Compares all of your existing debt and liabilities to your gross income; also known as your(...) - Read More
• Balloon Mortgage
  A mortgage that has equal monthly payments until the end of the term, at which time you pay a(...) - Read More
• Buydown
  A large up-front payment during the first few years of a mortgage, which reduces the amount of(...) - Read More

• c

• Change Frequency
  The number of times your monthly payment or interest rate changes in an ARM. - Read More
• Change Orders
  A change order is an official recognition of a change to the construction/renovation plans and(...) - Read More
• Closing
  The big day; the meeting at which you finalize the sale of your new home. - Read More
• Closing Costs
  Additional costs, on top of the home’s purchase price, that cover expenses such as appraisal(...) - Read More
• Closing Disclosure (CD)
  An integrated disclosure document that replaces the HUD-1 settlement statement and the final(...) - Read More
• Commitment Letter
  A letter from the lender, confirming the terms of your loan. - Read More
• Construction Loan Disbursement Request/Authorization
  This form is used to request a draw from the construction loan funds. It must be signed by(...) - Read More
• Consummation
  The date in which you assume the debt burden of your new mortgage loan. While it’s often the(...) - Read More
• Contingency Funds
  Contingency funds are funds included in the construction/renovation budget to cover possible(...) - Read More
• Conventional Mortgage
  A mortgage that conforms to certain national standards and has a fixed interest rate, so that(...) - Read More
• Convertible ARM
  An adjustable-rate mortgage with the option to convert to a fixed-rate mortgage. - Read More

• d

• Date of Possession
  The date you get to move into your new home; it’s usually the same as the closing date, but(...) - Read More
• Debt Ratio
  See Back-End Ratio - Read More
• Deed
  See Title - Read More
• Default
  Non-compliance with the terms of your mortgage, including not making your monthly payments. - Read More
• Delinquency
  A late payment. - Read More
• Deposits
  The lender will fund deposits on certain items that have been documented by an invoice.(...) - Read More
• Discount Points
  Voluntary, tax-deductible payment at closing to lower your interest rate; the cost of one(...) - Read More
• Down Payment
  A portion of the home’s cost, paid up front. - Read More

• e

• Earnest Money
  An amount of money you pay when you make an offer on a home to show the buyer that you’re(...) - Read More
• Easement
  The legal right of someone else to use your property, for example in the case of a shared driveway. - Read More
• Equity
  The difference between your home’s fair market value and what you still owe on your mortgage. - Read More
• Escrow Payment
  The portion of your monthly payment that your lender sets aside to pay for things such as(...) - Read More

• f

• Fair Market Value
  What your home is worth in the current market. - Read More
• Fees (Unused)
  Any fees or portion of fees that are unused after the completion of construction or renovation(...) - Read More
• Final Draw
  A minimum of 10% of the total construction hard costs must be held for the final draw. Final(...) - Read More
• Fixed Installment
  Your monthly mortgage payment, including principal and interest. - Read More
• Fixed-Rate Mortgage
  A mortgage in which your interest rate and monthly payments stay the same throughout the(...) - Read More
• Foreclosure
  When your lender takes possession of your home after you’ve defaulted on your mortgage; also,(...) - Read More
• Funding Notification
  A funding notification is a notice that funds have been disbursed following a draw request.(...) - Read More

• g

• Good Faith Estimate (GFE)
  A list of anticipated loan and closing costs and loan terms given to you by your lender after(...) - Read More
• Graduated Payment Mortgage
  A mortgage in which your monthly payments gradually increase over time, before reaching a(...) - Read More
• Guarantee Mortgage
  A mortgage that a third party promises to pay if the primary borrower defaults. - Read More

• h

• Home Inspection
  A thorough inspection of a house performed by a professional; home inspectors look for(...) - Read More
• Home Price Index
  A tool that provides home price statistics in specific areas, such as cities or neighborhoods. - Read More
• Homeowners Insurance
  An insurance policy that protects you and the lender in case the home needs to be repaired or(...) - Read More
• Hybrid ARM
  A mortgage that starts out with a fixed interest rate and payment amount, but converts to an(...) - Read More

• i

• Installment
  Your regular monthly mortgage payment. - Read More
• Interest Rate Ceiling
  The highest interest rate you’ll have to pay in an ARM. - Read More
• Interest Rate Floor
  The lowest interest rate you’ll pay in an ARM. - Read More

• l

• Lending Estimate (LE)
  A comprehensive, integrated disclosure document that replaces the Good Faith Estimate and the(...) - Read More
• Liabilities
  Your long-term and short-term debts and financial responsibilities. - Read More
• Lifetime Payments Cap
  The upper and lower limits of your monthly payments during the life of your ARM. - Read More
• Lifetime Rate Cap
  The upper and lower limits of your monthly payments during the life of your ARM. - Read More
• Line Item
  A line item is a part of the construction budget that shows the amount budgeted to complete a(...) - Read More
• Loan Acceleration
  A provision that allows your lender to demand the full amount of your mortgage to be repaid if(...) - Read More
• Lock-In Period
  A brief window of time during which your lender guarantees that you’ll get a certain interest(...) - Read More

• m

• Maturity
  The date that the balance of your mortgage is due. - Read More
• Mortgage
  A legal document in which you promise to repay the lender, giving the lender the right to take(...) - Read More
• Mortgage Insurance
  Not the same as homeowners insurance; this protects the lender in case you default on your(...) - Read More
• Mortgage Points
  See Discount Points and Origination Fee. - Read More

• n

• Net Worth
  The value of all your assets, including cash and property, minus the value of all your liabilities. - Read More
• Notice of Incomplete Application
  A form your lender sends you when more information is needed from you to complete your(...) - Read More

• o

• Offer
  When you find the house you want to buy, you start the purchase process by making an offer to(...) - Read More
• Origination Fee
  Fees you pay your lender at closing. This can be the broker’s fee or salesman’s commission.(...) - Read More

• p

• Permits
  A permit is an authorization from the local building authority to begin work on a construction(...) - Read More
• PITI
  The four components of your mortgage payment: Principal, Interest, Taxes and Insurance. - Read More
• Pre-approval
  Finding out how much money you will be able to borrow, before applying for your actual(...) - Read More
• Prepayment Penalty
  Some loans encourage you not to refinance too soon, instituting a financial penalty if you(...) - Read More
• Principal
  The amount of money you borrowed toward the cost of your home. This does not include interest. - Read More
• Principal Balance
  The amount of money you still owe toward the cost of your home, not including interest, taxes,(...) - Read More
• Private Mortgage Insurance (PMI)
  See Mortgage Insurance. - Read More
• Processing Fees
  Fees your lender charges you to cover the cost of creating and processing your loan, most(...) - Read More
• Property Address
  The street address of the house you’re trying to buy. - Read More

• r

• Real Estate Settlement Procedure Act (RESPA)
  A law that says lenders must tell you in advance how much your closing costs will be. - Read More
• Refinancing
  Taking out a new mortgage loan to pay off an existing mortgage, using the same property as security. - Read More
• Right of First Refusal
  A provision in a loan agreement that says that if you decide to sell the property, you must(...) - Read More

• s

• Sales Contract
  The formal agreement between you and the seller; the contract includes things such as the(...) - Read More
• Second Mortgage
  A loan that allows you to access the cash equity in your home; sometimes called a home equity loan. - Read More
• Site Inspection
  A site inspection is an on-site review of the progress of construction/renovation by a local(...) - Read More
• Standard Draw Requirements Letter
  The Standard Draw Requirements Letter is a state-specific document which outlines the(...) - Read More
• Survey
  The measurement of your property, done by a professional, showing property lines and other(...) - Read More

• t

• Terms
  The interest rate on your loan and the length of time you have to pay back the full amount of(...) - Read More
• TILA-RESPA Integrated Disclosure (TRID) Rule
  The rule that replaced the Good Faith Estimate, HUD-1 settlement statement and Truth in(...) - Read More
• Title
  The legal document that lists who owns a piece of property; also called a deed. - Read More
• Title Search
  Research done on a title that exposes any liens against the title or property. - Read More
• Truth in Lending
  A law that requires your lender to tell you in writing the terms of your loan agreement. As of(...) - Read More

• u

• Underwriting
  The analysis of your creditworthiness and the value of a property, to determine the risk(...) - Read More

• w

• Walk-Through
  One last trip through your potential new house before closing, to ensure that everything is(...) - Read More