Mortgage Glossary

1031 Exchange A 1031 exchange (named after Section 1031 of the Internal Revenue Code) is a tax-deferral strategy that allows a real... 203(k) Loan An FHA 203(k) loan is a government-insured mortgage that combines home purchase or refinance financing with the cost of renovations...

Ability to Repay (ATR) The Ability to Repay (ATR) rule is a federal requirement under the Truth in Lending Act that mandates mortgage lenders... Adjustable-Rate Mortgage (ARM) An adjustable-rate mortgage (ARM) is a home loan with an interest rate that changes periodically after an initial fixed-rate period.... Amortization Amortization is the process of repaying a mortgage through scheduled periodic payments that include both principal and interest. Each payment... Annual Percentage Rate (APR) The Annual Percentage Rate (APR) represents the total annual cost of borrowing expressed as a percentage. It includes the interest... Appraisal An appraisal is an independent, professional assessment of a property's market value conducted by a licensed or certified appraiser. Mortgage... Appraisal Process The appraisal process is the lender-ordered evaluation of a property's market value conducted by a licensed or certified appraiser. The... Asset Depletion Asset depletion is an income qualification method that allows mortgage borrowers to convert verified liquid assets into a calculated monthly... Authorized User An authorized user is a person added to another individual's credit card account who can make purchases but is not...

Bank Statement Loan A bank statement loan is a mortgage product that uses personal or business bank statements, typically covering , as the... Bankruptcy Waiting Period A bankruptcy waiting period is the mandatory time a borrower must wait after a bankruptcy discharge or dismissal before becoming... Blanket Loan A blanket loan (also called a blanket mortgage) is a single mortgage that covers two or more parcels of real... Bridge Loan A bridge loan is a short-term secured loan that allows a homeowner to use the equity in their current property...

Cash-Out Refinance A cash-out refinance replaces an existing mortgage with a new, larger loan, allowing the borrower to withdraw the difference as... Clear to Close Clear to close is the final approval status issued by a mortgage underwriter indicating that all loan conditions have been... Closing Closing is the final step in a mortgage transaction where ownership of the property transfers from seller to buyer. During... Closing Costs Closing costs are the fees and expenses incurred by the buyer and seller to complete a real estate transaction beyond... Closing Disclosure A Closing Disclosure is a five-page standardized form that details the final terms, costs, and credits of a mortgage loan.... Compensating Factors Compensating factors are borrower strengths that offset weaknesses in a mortgage application, such as elevated debt-to-income ratios or lower credit... Conditional Approval Conditional approval is an underwriting decision indicating that a mortgage loan is approved subject to the borrower satisfying specific outstanding... Condominium A condominium is a form of property ownership where the buyer holds title to the interior airspace of an individual... Conforming Loan A conforming loan is a mortgage that meets the underwriting guidelines and loan size limits set by Fannie Mae and... Conforming Loan Limit The conforming loan limit is the maximum loan amount that Fannie Mae and Freddie Mac will purchase or guarantee. Loans... Construction Loan A construction loan is a short-term financing instrument used to fund the building of a new residential property. The lender... Conventional Loan A conventional loan is a mortgage that is not insured or guaranteed by a federal government agency. Conventional loans are... Convertible ARM A convertible ARM is an adjustable-rate mortgage that includes a contractual option allowing the borrower to convert the loan to... Credit Score A credit score is a numerical representation of a borrower's creditworthiness, derived from credit report data, that mortgage lenders use...

Debt-to-Income Ratio (DTI) Debt-to-income ratio (DTI) is a financial metric that compares a borrower's total monthly debt obligations to their gross monthly income.... Deed in Lieu A deed in lieu of foreclosure is a transaction in which a borrower voluntarily transfers ownership of a mortgaged property... Deed of Trust A deed of trust is a legal document used in many states as the security instrument for a mortgage loan.... Down Payment The down payment is the portion of a home's purchase price paid upfront by the buyer at closing, with the...

Earnest Money Earnest money is a deposit made by a buyer when submitting a purchase offer on a property, demonstrating serious intent... Employment Verification Employment verification is the process by which mortgage lenders confirm a borrower's current employment status, job tenure, income level, and... Equal Credit Opportunity Act (ECOA) The Equal Credit Opportunity Act (ECOA) is a federal law that prohibits creditors from discriminating against credit applicants on the... Equity Equity is the difference between a property's current market value and the total amount owed on all mortgages and liens... Escrow Escrow refers to two related concepts in mortgage lending. During the transaction, an escrow account held by a neutral third...

Fair Housing Act The Fair Housing Act is a federal civil rights law (Title VIII of the Civil Rights Act of 1968) that... FHA Loan An FHA loan is a mortgage insured by the Federal Housing Administration, a division of the U.S. Department of Housing... Fixed-Rate Mortgage A fixed-rate mortgage is a home loan with an interest rate that remains constant for the entire loan term. The... Forbearance Forbearance is a temporary agreement between a mortgage servicer and borrower that reduces or suspends monthly mortgage payments for a... Foreclosure Foreclosure is the legal process by which a mortgage lender seizes and sells a property to recover the outstanding loan... Funding Conditions Funding conditions are the final set of requirements that must be met after loan approval and closing disclosure issuance but... Funding Fee A funding fee is a one-time charge required on VA-backed and USDA-backed mortgage loans, paid at closing or financed into...

HELOC A Home Equity Line of Credit (HELOC) is a revolving credit line secured by the borrower's home equity. HELOCs allow... Home Equity Loan A home equity loan is a fixed-rate, lump-sum second mortgage that allows homeowners to borrow against the equity in their... Home Inspection A home inspection is a visual examination of a residential property's physical structure and major systems, conducted by a qualified... Home Mortgage Disclosure Act (HMDA) The Home Mortgage Disclosure Act (HMDA) is a federal law requiring most mortgage lenders to collect, report, and publicly disclose... Homeowners Association (HOA) A homeowners association (HOA) is a private organization that manages shared property, enforces community rules, and collects dues from homeowners...

Income Documentation Income documentation refers to the financial records and statements a mortgage borrower provides to demonstrate their earnings history and current... Interest Rate The interest rate on a mortgage is the percentage charged by the lender on the outstanding loan balance as the...

Jumbo Loan A jumbo loan is a mortgage that exceeds the conforming loan limits established by the Federal Housing Finance Agency (FHFA)....

Lien A lien is a legal claim against a property that serves as security for a debt or obligation. In mortgage... Loan Estimate A Loan Estimate is a standardized three-page disclosure form that lenders must provide within three business days of receiving a... Loan Modification A loan modification is a permanent change to one or more terms of an existing mortgage, such as the interest... Loan Processing Loan processing is the administrative phase of mortgage origination during which a processor assembles, verifies, and organizes the borrower's documentation... Loan Servicing Loan servicing encompasses the administrative functions performed after a mortgage closes, including collecting monthly payments, managing escrow accounts, processing payoff... Loan-to-Value Ratio (LTV) Loan-to-value ratio (LTV) is the percentage of a property's appraised value that is financed by a mortgage. It is calculated...

Manual Underwriting Manual underwriting is the process by which a human underwriter individually reviews a mortgage application rather than relying on an... Mortgage A mortgage is a loan secured by real property in which the borrower pledges the property as collateral in exchange... Mortgage Insurance (MI) Mortgage insurance (MI) is a policy that protects the lender against financial loss if a borrower defaults on a home... Mortgage Insurance Premium (MIP) Mortgage insurance premium (MIP) is the insurance charge required on FHA-backed loans. MIP consists of an upfront premium paid at... Mortgage Note A mortgage note (also called a promissory note) is the legal document in which a borrower promises to repay the...

Origination Fee An origination fee is a charge assessed by a mortgage lender for processing, underwriting, and funding a new loan. It...

Past Due (PTD) Past Due (PTD) is a credit report indicator showing the total dollar amount of payments on a credit account that... Petition Filed (PTF) Petition Filed (PTF) is a public record notation on a credit report indicating that a bankruptcy petition has been filed... Planned Unit Development (PUD) A Planned Unit Development (PUD) is a residential community where individual homeowners own their lot and structure outright but share... Points (Discount Points) Discount points are upfront fees paid to the lender at closing to reduce the mortgage interest rate. Each point equals... Pre-Approval A mortgage pre-approval is a conditional commitment from a lender indicating the maximum loan amount a borrower is likely to... Pre-Qualification Mortgage pre-qualification is a preliminary assessment of a borrower's likely borrowing capacity based on self-reported financial information. It does not... Prepayment Penalty A prepayment penalty is a fee charged by a lender when a borrower pays off a mortgage loan earlier than... Principal Principal is the outstanding balance of a mortgage loan, excluding interest, fees, and other charges. It represents the actual amount... Prior to Approval (PTA) Prior to Approval (PTA) refers to a category of mortgage underwriting conditions that must be satisfied before the lender issues... Private Mortgage Insurance (PMI) Private mortgage insurance (PMI) is insurance that protects the lender against loss if a borrower defaults on a conventional mortgage... Promissory Note A promissory note is the legal document in which the borrower promises to repay the mortgage loan according to specified...

Qualified Mortgage (QM) A Qualified Mortgage (QM) is a category of residential mortgage loan that meets specific underwriting and structural requirements defined by...

Rapid Rescore A rapid rescore is an expedited process offered through mortgage lenders that updates a borrower's credit score within a few... Rate Lock A rate lock is a lender's commitment to hold a specific interest rate and point combination for a borrower for... Recording Recording is the act of filing real estate documents, such as the deed and mortgage or deed of trust, with... Refinance Refinancing replaces an existing mortgage with a new loan, typically to obtain a lower interest rate, change the loan term,... Reserves Reserves are liquid or near-liquid assets that a borrower retains after closing, measured in months of mortgage payments (PITI). Lenders... RESPA RESPA (the Real Estate Settlement Procedures Act) is a federal law enacted in 1974 that requires lenders, mortgage brokers, and... Reverse Mortgage (HECM) A reverse mortgage is a loan that allows homeowners aged 62 or older to convert a portion of their home...

Second Mortgage A second mortgage is a loan taken against a property that already has an existing first mortgage. It holds a... Settlement Settlement, also called closing, is the final step in a real estate transaction where ownership of the property transfers from... Short Sale A short sale occurs when a homeowner sells a property for less than the outstanding mortgage balance with the lender's...

Term (Loan Term) The loan term is the length of time a borrower has to repay a mortgage in full. It is expressed... Title Title refers to the legal right of ownership of real property. Having clear title means the owner has full, unencumbered... Title Insurance Title insurance is a policy that protects the policyholder against financial loss from defects in a property's title, such as... Title Search A title search is a detailed examination of public records to establish the legal ownership history of a property and... Tradeline A tradeline is any credit account that appears on a consumer's credit report. Each tradeline includes the creditor name, account... TRID (TILA-RESPA Integrated Disclosure) TRID (TILA-RESPA Integrated Disclosure) is a federal rule issued by the CFPB that consolidated four existing mortgage disclosure forms into... Truth in Lending Act (TILA) The Truth in Lending Act (TILA) is a federal law enacted in 1968 that requires lenders to provide standardized disclosures...

Underwriting Underwriting is the process by which a mortgage lender evaluates a borrower's creditworthiness, income, assets, and the property being financed... USDA Eligible Areas USDA eligible areas are geographic locations designated by the U.S. Department of Agriculture as qualifying for USDA Rural Development home... USDA Guarantee Fee The USDA guarantee fee is a mortgage insurance charge on USDA Rural Development loans that funds the program's loss reserves.... USDA Income Limits USDA income limits are household income thresholds set by the U.S. Department of Agriculture that determine eligibility for USDA Rural... USDA Loan A USDA loan is a mortgage backed by the U.S. Department of Agriculture through its Rural Development program. USDA loans...

VA Loan A VA loan is a mortgage guaranteed by the U.S. Department of Veterans Affairs, available to eligible veterans, active-duty service...

Yield Spread Premium A yield spread premium (YSP) is compensation paid by a lender to a mortgage broker for originating a loan at...