General Terms
Appraisal
A licensed appraiser’s opinion of the property’s value, based on the home, recent comparable sales, and market conditions. Lenders usually base LTV on the lower of the purchase price or appraised value.
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General Terms
Equity
The difference between what a property is worth and what is owed against it. Equity is not cash in hand until the owner sells or borrows against it.
General Terms
Home Inspection
A physical inspection of the home’s condition. It is different from an appraisal because it focuses on problems with the property, not the value.
General Terms
Lien
A legal claim against a property. A mortgage lien gives the lender a claim tied to the home if the loan is not repaid.
General Terms
Real Estate Agent
A licensed professional who helps buyers or sellers with a real estate transaction and is typically paid through a commission.
General Terms
Buyer’s Agent
The real estate agent who represents or assists the buyer in the transaction.
General Terms
Listing Agent
The real estate agent who represents or assists the seller in the transaction.
General Terms
Easement
A legal right for someone else to use or access part of a property, such as a utility company accessing lines.
General Terms
Collateral
Property pledged as security for a loan. With a mortgage, the home is the collateral.
General Terms
Comparable Sales
Recently sold homes that are similar to the property being appraised. Appraisers use these to help support the value opinion.
General Terms
Market Value
An estimate of what a property would likely sell for in the current market between a willing buyer and seller.
General Terms
Purchase Contract
The agreement between buyer and seller that outlines the purchase price, deposit, deadlines, contingencies, and closing terms.
General Terms
Contingency
A condition in the contract that must be satisfied for the transaction to move forward, such as financing, appraisal, or inspection approval.
General Terms
Settlement
Another word for closing. This is when final documents are signed, money is exchanged, and ownership transfers.
Application & Qualification
First-Time Home Buyer
Generally someone who has not owned and occupied a primary residence within the past three years. Some programs use this definition for eligibility.
Application & Qualification
Pre-Qualification
An early lender review based on information provided by the borrower and often a credit review. It is usually less complete than a fully documented approval.
Application & Qualification
Pre-Approval
A stronger review that should include the application, credit, income documents, and asset documents. The meaning can vary by lender, so buyers should ask what was reviewed.
Application & Qualification
Loan Application
The borrower’s formal request for mortgage financing, including details about income, assets, debts, employment, credit, property, and loan purpose.
Application & Qualification
Borrower
A person who applies for and is legally responsible for repaying the mortgage loan.
Application & Qualification
Co-Signer
Someone responsible for repayment of the loan but not necessarily on title. This can help qualifying, but the co-signer is still liable for the debt.
Application & Qualification
Occupying Co-Borrower
A borrower who is on the loan and title and will live in the home as a resident.
Application & Qualification
Non-Occupying Co-Borrower
A borrower who is on the loan and usually title but will not live in the home. Often used to help qualify with additional income.
Application & Qualification
Gross Income
Income before deductions such as taxes, insurance, retirement contributions, and other payroll deductions.
Application & Qualification
Net Income
Income remaining after deductions such as taxes, insurance, retirement contributions, and payroll withholdings.
Application & Qualification
Household Income
The combined income of household members. Some programs, including USDA and certain assistance programs, may count household income even from people not on the loan.
Application & Qualification
Debt-to-Income Ratio
The percentage of gross monthly income used for debts, including the proposed housing payment and other monthly obligations.
Application & Qualification
Loan-to-Value (LTV)
The loan amount expressed as a percentage of the property's value (loan ÷ value). A lower LTV means more equity or a larger down payment. On many conventional loans, an LTV above 80% typically requires private mortgage insurance.
Application & Qualification
Front-End Ratio
The percentage of gross monthly income used for the proposed housing payment only.
Application & Qualification
Back-End Ratio
The percentage of gross monthly income used for the housing payment plus other monthly debt payments.
Application & Qualification
Residual Income
Income left over after major monthly obligations. VA loans commonly use this as an additional affordability test.
Application & Qualification
Compensating Factors
Strengths in a borrower’s file that may help offset risk, such as strong reserves, low payment shock, high credit scores, or stable employment.
Application & Qualification
Payment Shock
The increase between a borrower’s current housing payment and the proposed new mortgage payment.
Application & Qualification
Manual Underwriting
A human underwriter reviews the file without relying solely on an automated approval. This may be needed when the file does not receive an automated approve recommendation.
Application & Qualification
Automated Underwriting System
Software used to evaluate mortgage risk and issue findings, such as approval recommendations and required documentation.
Application & Qualification
Desktop Underwriter
Fannie Mae’s automated underwriting system, often called DU.
Application & Qualification
Loan Product Advisor
Freddie Mac’s automated underwriting system, often called LPA.
Application & Qualification
Underwriting
The lender’s review of credit, income, assets, property, debts, and loan guidelines before issuing approval.
Application & Qualification
Conditional Approval
An approval that still requires certain items to be completed, documented, or cleared before final approval.
Application & Qualification
Clear to Close
The point where underwriting has cleared required conditions and the loan can move toward final closing documents.
Application & Qualification
Verification of Employment
A lender’s confirmation that employment is active and income information is accurate. It may happen during processing and again near closing.
Credit
Credit Report
A report showing credit history, accounts, payment patterns, balances, inquiries, and public-record information used in loan review.
Credit
Credit Score
A numerical risk score based on credit history. Mortgage lenders often use specific mortgage scoring models, not the same score shown by every consumer app.
Credit
Middle Credit Score
For many mortgage reviews, lenders use the middle score when three bureaus report scores for a borrower.
Credit
Tri-Merge Credit Report
A mortgage credit report that combines information from Equifax, Experian, and TransUnion.
Credit
Hard Credit Inquiry
A credit pull that can affect the credit score and is visible to other creditors.
Credit
Soft Credit Inquiry
A credit check that generally does not affect the credit score and is often used for monitoring or preliminary reviews.
Credit
Tradeline
An account listed on a credit report, such as a credit card, auto loan, student loan, or mortgage.
Credit
Revolving Debt
Debt with a credit limit and changing balance, such as a credit card or line of credit.
Credit
Installment Debt
Debt repaid in scheduled payments over a set term, such as an auto loan, student loan, or personal loan.
Credit
Collection Account
An unpaid debt that has been sent to a collection agency. The impact depends on loan program, amount, type, and documentation.
Credit
Charge-Off
A debt the creditor has written off as a loss. It may still appear on credit and may still need to be addressed depending on the loan program.
Credit
Disputed Account
An account on the credit report that the consumer has challenged. Disputes can affect underwriting results and may need review.
Credit
Authorized User
Someone allowed to use another person’s credit account. Mortgage underwriting may review whether the account truly reflects the borrower’s credit behavior.
Credit
Nontraditional Credit
Alternative credit history, such as rent, utilities, insurance, or other documented payment history, used when traditional credit is limited.
Credit
Derogatory Credit
Negative credit history such as late payments, collections, charge-offs, foreclosure, bankruptcy, or judgments.
Credit
Bankruptcy Waiting Period
The required time after bankruptcy before a borrower may be eligible for certain mortgage programs. Rules vary by loan type and circumstances.
Credit
Foreclosure Waiting Period
The required time after foreclosure before mortgage eligibility returns. Rules vary by program and whether extenuating circumstances apply.
Income & Assets
Assets
Money or accounts available to the borrower, such as checking, savings, retirement funds, investment accounts, and documented gift funds.
Income & Assets
Reserves
Funds remaining after closing, often measured in months of mortgage payments. Some loan types or risk profiles require reserves.
Income & Assets
Liquid Assets
Assets that can be readily converted to cash, such as checking, savings, money market funds, or certain investment accounts.
Income & Assets
Source of Funds
Documentation showing where money came from, especially for deposits used toward closing.
Income & Assets
Seasoned Funds
Money that has been in the borrower’s account long enough that the lender may not need to document its original source.
Income & Assets
Large Deposit
A deposit that is significant enough to require explanation or documentation during underwriting.
Income & Assets
Gift Funds
Money given to a borrower, usually from an eligible donor, that must be documented and not expected to be repaid.
Income & Assets
Gift Letter
A document signed by the donor stating that the gift money is not a loan and does not have to be repaid.
Income & Assets
Earnest Money Deposit
The initial deposit made with the purchase contract. It is later credited toward cash to close if the transaction closes.
Income & Assets
Cash to Close
The total amount due at closing after down payment, closing costs, prepaid items, credits, and deposits are calculated.
Income & Assets
Down Payment
The portion of the purchase price paid by the buyer and not borrowed. It is separate from closing costs.
Income & Assets
Seller Credit
Money the seller agrees to contribute toward the buyer’s allowable closing costs or prepaid expenses.
Income & Assets
Lender Credit
A credit from the lender that helps offset closing costs, often in exchange for a higher interest rate.
Income & Assets
Interested Party Contribution
A contribution from someone involved in the transaction, such as the seller, builder, real estate agent, or lender, subject to program limits.
Income & Assets
Asset Statement
A formal statement from a bank, retirement account, or investment account used to verify funds. Lenders usually need all pages.
Income & Assets
Payroll Deduction
Amounts withheld from gross pay, such as taxes, insurance, retirement contributions, garnishments, or other deductions.
Income & Assets
Year-to-Date Income
Income earned from the start of the calendar year through the date shown on the pay stub or verification.
Income & Assets
Variable Income
Income that changes over time, such as overtime, bonus, commission, tip, or seasonal income. Lenders usually review history and stability.
Income & Assets
Self-Employment Income
Income from a business owned by the borrower. Lenders commonly review tax returns, profit-and-loss details, and business stability.
Income & Assets
Non-Taxable Income
Income that is not taxed, such as certain disability, Social Security, or child support income. Some programs may allow grossing up.
Loan Programs
Conventional Loan
A mortgage that is not insured or guaranteed by the federal government. Many conventional loans follow Fannie Mae or Freddie Mac guidelines.
Loan Programs
FHA Loan
A loan insured by the Federal Housing Administration, commonly used by buyers who need more flexible credit or debt-ratio guidelines.
Loan Programs
VA Loan
A mortgage benefit for eligible veterans, active-duty service members, and certain surviving spouses, often allowing no down payment and no monthly PMI.
Loan Programs
USDA Loan
A rural housing loan program that may allow no down payment for eligible properties and eligible household income levels.
Loan Programs
Jumbo Loan
A loan amount above conforming loan limits. Jumbo loans often have stricter credit, asset, and documentation requirements.
Loan Programs
Conforming Loan
A conventional loan that meets Fannie Mae or Freddie Mac requirements, including loan-limit rules.
Loan Programs
High-Balance Loan
A conforming loan amount available in certain high-cost areas above the standard conforming limit but below the local high-cost limit.
Loan Programs
Non-QM Loan
A non-qualified mortgage that does not fit standard agency guidelines. These may use alternative documentation but often carry higher costs or stricter down payment requirements.
Loan Programs
Bank Statement Loan
A non-QM style loan that may use bank statements to evaluate qualifying income, often for self-employed borrowers.
Loan Programs
DSCR Loan
A rental-property loan that evaluates the property’s rental income compared with the payment, rather than using traditional personal income documentation.
Loan Programs
Portfolio Loan
A loan a lender keeps in its own portfolio instead of selling through standard agency channels. Guidelines may be more customized.
Loan Programs
Down Payment Assistance
Programs that help eligible buyers cover down payment or closing costs through grants, forgivable loans, deferred loans, or other assistance.
Loan Programs
Grant
Assistance funds that typically do not have to be repaid if program requirements are met.
Loan Programs
Forgivable Loan
Assistance that may be forgiven after the buyer meets requirements, such as living in the home for a certain period.
Loan Programs
Deferred Second Mortgage
A second loan used for assistance that may not require payments until a future event, such as sale, refinance, or payoff.
Rates & Payments
Interest Rate
The rate used to calculate interest on the outstanding loan balance. It is not the same as APR.
Rates & Payments
Annual Percentage Rate
APR reflects the interest rate plus certain loan costs, helping borrowers compare loan offers more broadly than the note rate alone.
Rates & Payments
Amortization
The way each payment is split between principal and interest over time. Early payments usually go mostly to interest; later payments pay down more principal.
Rates & Payments
Principal
The amount borrowed or the part of the monthly payment that reduces the loan balance.
Rates & Payments
Interest
The cost paid to the lender for borrowing money. The interest portion of the payment does not reduce the loan balance.
Rates & Payments
PITI
Principal, interest, taxes, and insurance. This is the basic full housing payment used by many lenders.
Rates & Payments
PITIA
Principal, interest, taxes, insurance, and association dues. Often used when HOA fees apply.
Rates & Payments
PITIMA
Principal, interest, taxes, insurance, mortgage insurance, and association dues.
Rates & Payments
Fixed-Rate Mortgage
A mortgage with an interest rate that does not change during the loan term.
Rates & Payments
Adjustable-Rate Mortgage
A mortgage where the rate can change after an initial fixed period based on the index, margin, and adjustment rules.
Rates & Payments
Rate Lock
A lender agreement that holds a specific rate for a set period while the loan moves toward closing.
Rates & Payments
Lock Extension
Extra time added to a rate lock, often with a cost, when closing is delayed beyond the original lock period.
Rates & Payments
Float
Choosing not to lock the rate yet, allowing the rate to move up or down with the market.
Rates & Payments
Discount Points
Upfront fees paid to reduce the interest rate. One point equals 1% of the loan amount.
Rates & Payments
Origination Fee
A lender fee for originating or processing the mortgage loan. It is typically shown in the loan costs section of disclosures.
Rates & Payments
Buydown
A structure where money is paid upfront to reduce the borrower’s interest rate, either temporarily or permanently.
Rates & Payments
Temporary Buydown
A buydown that lowers the payment for the first one or more years before the payment returns to the note rate schedule.
Rates & Payments
Permanent Buydown
Paying discount points or fees upfront to reduce the rate for the life of the loan.
Rates & Payments
Break-Even Point
The point where upfront cost savings or rate-buydown savings offset the money paid upfront.
Rates & Payments
Prepaid Interest
Interest collected at closing for the days between the closing date and the start of the first full payment cycle.
Rates & Payments
First Payment Date
The date the first mortgage payment is due, usually after a full month of interest has accrued.
Rates & Payments
Late Fee
A fee charged when a payment is not received within the grace period stated in the loan documents.
Rates & Payments
Prepayment Penalty
A fee charged for paying off a loan early. It is uncommon on many standard owner-occupied mortgage products but can appear in some loan types.
Adjustable-Rate Terms
Index
The market benchmark used to adjust an ARM after the fixed period ends.
Adjustable-Rate Terms
Margin
The fixed amount added to the index to calculate the adjusted interest rate on an ARM.
Adjustable-Rate Terms
Fully Indexed Rate
The ARM index plus the margin. This is used to calculate the adjusted rate, subject to caps.
Adjustable-Rate Terms
Initial Adjustment Cap
The limit on how much an ARM rate can change at the first adjustment after the fixed period.
Adjustable-Rate Terms
Periodic Adjustment Cap
The limit on how much an ARM rate can change at each later adjustment.
Adjustable-Rate Terms
Lifetime Cap
The maximum amount an ARM rate can increase over the life of the loan.
Adjustable-Rate Terms
SOFR
The Secured Overnight Financing Rate, a benchmark rate used in many modern financial products, including some adjustable-rate mortgages.
Mortgage Insurance
Mortgage Insurance
Insurance that protects the lender if the borrower defaults. It may be required with low down payment conventional loans and FHA loans.
Mortgage Insurance
Private Mortgage Insurance
Mortgage insurance on many conventional loans when the down payment is below 20% or LTV is above 80%.
Mortgage Insurance
FHA Mortgage Insurance Premium
Mortgage insurance required on FHA loans, usually including upfront and annual/monthly components.
Mortgage Insurance
Upfront MIP
The upfront FHA mortgage insurance premium charged on many FHA loans. It can often be financed into the loan amount.
Mortgage Insurance
Annual MIP
The ongoing FHA mortgage insurance premium charged annually and usually paid monthly as part of the mortgage payment.
Mortgage Insurance
VA Funding Fee
A fee charged on many VA loans to help support the VA loan program. Some eligible veterans are exempt.
Mortgage Insurance
USDA Guarantee Fee
A fee structure for USDA loans that may include upfront and annual guarantee fees.
Mortgage Insurance
PMI Cancellation
The process of removing private mortgage insurance from a conventional loan when equity and program requirements are met.
Closing Documents
Loan Estimate
A standardized form that shows estimated loan terms, payment, closing costs, and cash to close after applying for a mortgage.
Closing Documents
Closing Disclosure
A standardized final disclosure showing loan terms, closing costs, prepaid items, credits, and cash to close before closing.
Closing Documents
Note
The written promise to repay the loan. It states key loan terms such as rate, payment, and repayment period.
Closing Documents
Promissory Note
Another name for the Note, the borrower’s legal promise to repay the mortgage debt.
Closing Documents
Mortgage
A legal document that gives the lender a security interest in the property. In some states, a deed of trust is used instead.
Closing Documents
Deed of Trust
A security instrument used in some states instead of a mortgage to secure repayment of the loan with the property.
Closing Documents
Deed
The document used to transfer ownership of real estate from one party to another.
Closing Documents
Title
Legal ownership rights to the property. Title work checks whether ownership can transfer cleanly.
Application & Qualification
Initial Disclosures
The early loan documents sent after application. They explain estimated loan terms, costs, rights, and required notices.
Application & Qualification
Final Approval
The lender’s final underwriting approval after required conditions, updated documents, property items, and closing requirements are satisfied.
Closing Documents
Closing Package
The full set of documents signed at closing, including the note, security instrument, disclosures, and title documents.
Closing Documents
Wet Signature
A physical handwritten signature on paper documents, often required for certain closing documents.
Closing Documents
eSign
An electronic signature used for documents that can be signed digitally.
Closing Documents
Right of Rescission
A federal right to cancel certain refinance transactions within a limited period after closing. It generally does not apply to most home purchases.
Escrow, Title & Property Costs
Escrow Account
An account used by the lender or servicer to collect and pay property taxes, homeowners insurance, and sometimes mortgage insurance.
General Terms
Escrow Analysis
A periodic review of the escrow account to determine whether the monthly escrow payment needs to change.
Escrow, Title & Property Costs
Prepaid Items
Costs collected at closing for items paid in advance, such as prepaid interest, insurance premiums, and initial escrow deposits.
Escrow, Title & Property Costs
Impounds
Another word for escrow deposits collected for taxes and insurance.
Escrow, Title & Property Costs
Title Search
A review of public records to identify ownership, liens, judgments, easements, or other title issues.
Escrow, Title & Property Costs
Title Insurance
Insurance that protects against covered title problems discovered after closing.
Escrow, Title & Property Costs
Owner’s Title Policy
A title insurance policy that protects the homeowner’s ownership interest, usually optional but often recommended.
Escrow, Title & Property Costs
Lender’s Title Policy
A title insurance policy that protects the lender’s interest in the property and is commonly required when getting a mortgage.
Escrow, Title & Property Costs
Settlement Fee
A closing-office or title-company fee for handling settlement services and closing coordination.
Escrow, Title & Property Costs
Recording Fee
A government fee charged to record documents such as the deed or mortgage in public records.
Escrow, Title & Property Costs
Transfer Tax
A state or local tax charged when ownership of real estate transfers. The amount and payer vary by location and contract.
Escrow, Title & Property Costs
Property Taxes
Taxes charged by local governments based on property value and local tax rules.
Escrow, Title & Property Costs
Homeowners Insurance
Insurance that protects the home against covered damage and liability risks. Lenders require acceptable coverage.
Escrow, Title & Property Costs
Hazard Insurance
The portion of homeowners insurance that protects against covered physical damage to the home.
Escrow, Title & Property Costs
Flood Insurance
Separate coverage for flood damage. It may be required by the lender if the property is in a high-risk flood zone.
Escrow, Title & Property Costs
HOA Fees
Homeowners association dues used to pay for community expenses, amenities, or shared maintenance.
Escrow, Title & Property Costs
Special Assessment
An extra fee charged by an HOA, condo association, or local authority for a specific project or expense.
Escrow, Title & Property Costs
Survey
A map or report showing property boundaries, improvements, easements, and potential encroachments.
Escrow, Title & Property Costs
Encroachment
When a structure, fence, driveway, or other improvement crosses onto another property or easement area.
Refinance, Construction & Servicing
Refinance
Replacing an existing mortgage with a new loan, often to change rate, term, loan type, or access equity.
Refinance, Construction & Servicing
Cash-Out Refinance
A refinance where the new loan is larger than the payoff of the old loan, allowing the borrower to receive cash from equity.
Refinance, Construction & Servicing
Rate-and-Term Refinance
A refinance mainly used to improve the rate, payment, or term without taking significant cash out.
Refinance, Construction & Servicing
Streamline Refinance
A simplified refinance option available on certain loan types, often with reduced documentation requirements.
Refinance, Construction & Servicing
Construction-to-Permanent Loan
A loan that finances construction and then converts to permanent mortgage financing after the home is completed.
Refinance, Construction & Servicing
Draw Schedule
The construction payment schedule showing when funds are released as stages of work are completed.
Refinance, Construction & Servicing
Final Inspection
An appraiser or inspector confirms required work or construction has been completed before final loan approval or closing.
Refinance, Construction & Servicing
Certificate of Occupancy
A local government document confirming a property meets occupancy requirements and can be lived in.
Refinance, Construction & Servicing
Servicer
The company that collects payments, manages escrow, sends statements, and handles day-to-day loan servicing after closing.
Refinance, Construction & Servicing
Loan Sale
The transfer of a mortgage loan to another investor or owner. The servicer may or may not change.
Refinance, Construction & Servicing
Subordinate Financing
A second loan or lien behind the first mortgage, such as a second mortgage, HELOC, or assistance loan.
Refinance, Construction & Servicing
Second Mortgage
A loan secured by the property that is junior to the first mortgage.
Refinance, Construction & Servicing
HELOC
A home equity line of credit that allows borrowing against available equity, usually with a variable rate.
Rates & Payments
Mortgage-Backed Securities
Investments backed by pools of mortgage loans. Mortgage market pricing can influence the rates borrowers see.
Refinance, Construction & Servicing
Conforming Loan Limit
The maximum loan amount for a standard conforming loan. It is updated periodically and can vary by county.
Rates & Payments
Loan-Level Price Adjustment
A conventional loan pricing adjustment based on risk factors such as credit score, LTV, occupancy, property type, or loan purpose.
General Terms
Occupancy
How the property will be used: primary residence, second home, or investment property.
General Terms
Primary Residence
The home the borrower intends to occupy as their main home.
General Terms
Second Home
A property the borrower occupies for part of the year but does not rent or use as a primary residence, subject to program rules.
Refinance, Construction & Servicing
Investment Property
A property purchased or owned for rental income or investment purposes rather than owner occupancy.
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Educational note: Mortgage rules and definitions can vary by loan program, lender, state, and transaction type. This library is for education only and should not replace guidance from a licensed mortgage professional, attorney, tax professional, or insurance professional.