Common Mortgage Terms
1st Payment Date: A first mortgage payment is due the first day of the month following the 30-day period after closing. For example, if you purchase a home and close on August 30th, the first payment would be due on October 1st.
1004D: Appraisal Update and/or Completion Report. This form is used to report the inspection of items the appraiser previously cited on the initial appraisal report, and ensure those items have been addressed properly.
203K Loan: This type of loan enables homebuyers and homeowners to finance both the purchase of a house and the cost of its rehabilitation (updates/construction) through a single mortgage or to finance the rehabilitation of their existing home. Generally houses purchased under this program are considered “fixer-uppers” rather than a standard “turn-key” home.
4506C: This form gives permission to the lender to verify income through past tax tax records with the IRS.
Adjustment Cap: A limit to how much a variable interest rate (on ARM-Adjustable-Rate Mortgage- loans only) can increase or decrease in a single adjustment period.
Adjustment Date: The date on which the interest rate changes for an adjustable-rate mortgage (ARM).
Adjustment Period: The period of time between adjustment dates for an adjustable-rate mortgage (ARM)
Amortization: The gradual reduction in the principal amount owed on a mortgage. During the earlier years of the loan, most of each payment is applied towards the interest owed. During the final years of the loan, payment amounts are applied almost exclusively to the remaining principal.
Amortization Term: The amount of time required to pay off the mortgage, expressed in months. For example, for a 15-year fixed-rate mortgage, the amortization term is 180 months.
Appraisal: An expert estimate of the value of something. Some factors of a property appraisal include the condition of the home, any upgrades or additions, the size of the lot, any recently sold comparable properties, etc.
Appraised Value: An evaluation of a property’s value based on a given point in time. The evaluation is completed by a professional appraiser during the mortgage process.
Bond: A bond is a fixed income instruments that represents a loan made by an investor to a borrower. Bonds are used by companies or governments to finance projects and include the details of the loan and its payments.
Broker: An individual or firm who arranges transactions between a buyer and a seller for a commission.
Cash to Close: The funds a buyer needs to finalize a real estate purchase. This can include the down payment in addition to fees related to appraisal, insurance, legal counseling and escrow.
Cash-Out Refinance: This replaces the existing mortgage with a new home loan for more than the borrowers owe on their house. The difference goes to the borrower in cash, and they can then spend it on home improvements, debt consolidations or other financial needs, however, there must be enough equity built up on the home to do so.
Chain of Title: A record that lists the successive owners of a home or property. It ensures the home or property is free to transfer to a new owner.
Closing: This is the final phase of a mortgage loan processing where the property title passes from the seller to the buyer.
Closing Costs: Fees and charges due at the closing of a real estate transaction over the property’s purchase price. Closing costs can include attorney fees, title fees, processing fees, insurance, lender costs, upfront payments, etc.
Co-borrower: A co-borrower, or co-applicant, agrees to accept equal responsibility for repaying a loan and equal ownership in the investments.
Community Property: A type of joint ownership of assets between married couples. Any income and any real or personal property acquired by either spouse during a marriage are considered community property and thus belong to both partners.
Comparable (Comps): Comps are recently sold properties that are similar to the property or home someone is trying to buy in terms of location, size, condition and features.
Construction Loan: A short term loan used to finance the construction of a home or real estate project.
Conventional Loan: This is the most common loan used in the mortgage industry. It is a mortgage loan that is not backed by a government agency and requires a high credit score and a 20% down payment but may offer better interest rates and lower fees.
Cosigner: A cosigner helps a borrower obtain a loan and takes on the legal obligation to be a backup source for payment on the loan to reduce the risk for the lender.
Curtailment: The act of restricting or reducing something or cutting it short. For example: a loan would be satisfied by curtailment when the homeowner pays off the balance early.
Deed (Warranty Deed): A document that provides the greatest amount of protection to the purchases of a property. It warrants that the owner owns the property free and clear of any outstanding liens, mortgages or other encumbrances.
Deed of Trust (Mortgage): This document pledges real property to secure a loan and involves three parties: the borrower, the lender and a trustee.
Discount Points: (Also known as Mortgage Points): Fees paid directly to the lender at closing in exchange for a reduced interest rate. The borrower can choose to pay these fees to reduce the interest rate on their mortgage.
Down Payment: A type of payment made in cash, upfront, on the purchase of a home. The type of down payment a borrower makes will impact the type of mortgage they qualify for and the loan’s terms and conditions.
Draw: Payment taken from the construction loan to material suppliers, contractors and subcontractors.
Escrow Account (Impounds): This is an account that can be set up with a new home loan that will pay the property taxes and/or insurance by collecting partial payment for these dues along with the monthly mortgage payment.
Escrow Analysis: An audit of receipts and disbursements for an escrow account to determine whether adequate funds exist to pay for taxes and insurance.
Escrow Company: An escrow company hold money and documents between the parties and helps facilitate the homebuying and selling process.
Escrow Waiver: Documentation from the buyer that provides the lender with proof of payment of taxes and insurance each year.
Escrow Shortage: This is when the borrower has a positive balance in their escrow account, but they still do not have enough funds to cover the new dues. This can be caused by an increase in the taxes and/or insurance.
eConsent: A digital method of providing information and obtaining a digital signature.
eSign: A digital method of signing documents that can help make operations paperless.
FHA Streamline: A refinance program that FHA homeowners can use, and it allows them to refinance their mortgage much quicker while avoiding a lot of paperwork, without an appraisal and saving time and money.
Final CD: This document will provide the final and exact costs with no further changes.
Finance Charge: The cost of borrowing money, including interest and other fees.
Fixed Rate Mortgage: A home loan with a fixed interest rate for the entire term of the loan.
Float Down: A float down refers to a mortgage rate lock that gives the borrower an option to reduce the interest rate on their mortgage if the market interest rates fall during a specified period.
Flood Certification: A documentation that states the flood zone status of real estate property.
Flood Insurance: A type of property insurance that covers a dwelling for losses sustained by water damage due to flooding caused by heavy or prolonged rain, melting snow, coastal storm surges, and blocked storm drain system or dam failure.
Flood Zone: Geographic areas that FEMA has defined according to varying levels of flood risk.
Foreclosure: The legal process by which a lender seizes and sells a home or property after a borrower is unable to fulfill his or her repayment obligation.
Funding: The process of wiring or releasing money from a mortgage lender to title or escrow prior to closing a real estate transaction.
Government Loan: Loans insured or backed by the U.S federal government. Examples include loans for veterans, college education, mortgages, disaster relief and for opening a business.
Gift: The “gift giver” can provide funds to a home buyer with no expectation of being repaid.
Gift of Equity: This occurs when someone sells property to a family member or friend for a lower price than the current market value. The difference between the two prices represents the gift of equity.
Home Equity: The difference between what is owed on the mortgage and what the home is currently worth.
Income Property: A piece of real estate that is purchased or developed in order to earn income by renting or leasing it out to others. Income properties can be either residential or commercial.
Initial CD (Closing Disclosure): The mortgage document that outlines all the details of the financing.
Initial Disclosures: The preliminary disclosures that must be acknowledged and signed in order to move forward with a loan application. They let the borrower know what they can expect in terms of costs, payments and loan structure.
Insurance Binder: A temporary policy that serves as a placeholder until the formal policy is issued.
Insurance Declaration Page: A document that summarizes the information essential to the insurance coverage and includes the name, address, description of the insured property and the premium.
Interest Rate: A proportion of a loan that is charged as interest to the borrower, typically expressed as an annual percentage of the loan outstanding.
Interested Party Contributions: Costs that are normally the responsibility of the property purchasers that are paid by someone else who has a financial interest in or can influence the terms of the sale or transfer of the subject property.
Investment Property: A property purchased with the intention of earning a return on the investment through rental income, the future resale of the property, or both.
Judgement Lien: A court ruling that gives a creditor the right to take possession of a debtor’s property if the debtor fails to fulfill their contractual obligation.
Jumbo Loan: A type of financing where the loan amount is higher than the conforming loan limit set by the FHFA.
Liabilities: A liability is something a person or company owes, usually a sum of money. It is also a state of being responsible for something, especially by law.
Lien: A right to keep possession of property belonging to another person until a debt owed by that person is discharged.
Manufactured Housing: A home unit constructed primarily or entirely off-site at factories prior to being moved to a piece of property.
Margin: The amount of equity an investor has in their brokerage account.
Maturity Date: When a debt comes due and all principal and/or interest must be repaid to creditors.
Mavent/Compliance Report: Mavent is an online service that enables you to perform a loan check (Compliance Report) at any point during the loan process.
Multi-Family Residence: A single building that is set up to accommodate more than one family living separately. Examples include a duplex, townhome or apartment complex.
No-Cash-Out Refinance: The refinancing of an existing mortgage for an amount equal to or less than the existing outstanding loan balance. This is usually done to lower the interest rate on the loan or to change some of the terms.
Note: A document that the borrower signs at the end of the closing and it contains all the terms of the agreement between the borrower and the lender.
Piggyback Mortgage: A piggyback mortgage is a second mortgage on a home equity loan that is made at the same time as your main mortgage. It allows borrowers with low down payment savings to borrow additional money in order to qualify for a main mortgage without paying for private insurance.
Post-Consummation CD: When an event requires a corrected closing disclosure, the lender must deliver a corrected post-consummation CD within 30 days to establish that such even has occurred.
Preapproval: A letter from a lender indicating the type of and amount of loan you can qualify for.
Prepaid Interest: Interest that a debtor pays before the first scheduled debt repayment. It can also be the interim interest that accrues from the settlement day to the beginning of the first mortgage period.
Primary Residence: The primary location that a person inhabits.
Principal Reduction: A decrease in the amount owed on a loan. The lender may grant a principal reduction to provide financial relief for a borrower as an alternative to foreclosure.
Purchase Agreement: A binding contract between a buyer and seller that outlines the details of a home transaction.
Quit Claim Deed: A quit claim deed is a document that is used to transfer ownership of real estate from one party to another.
Rate Lock: A rate lock, or lock-in, means that the interest rate will not change between the offer and closing as long as the closing happens within a specific time frame and there are no changes to the application.
Real Estate Commissions: A fee paid to a realtor for the services provided to home buyers and sellers. The fees average between 5-6%.
Rescission: The cancellation of a contract (loan closing). Rescission rights are given on refinances of primary residences.
Reserves: Savings balances that will be there after the closing on the home. These are considered "emergency funds" that can help pay the mortgage if needed.
Reverse Mortgage: This is a type of loan for a homeowner who has considerable home equity and can borrow against the value of their home and receive funds with no monthly mortgage payments.
Second Home: A residence that a person intends to occupy for part of the year in addition to their primary residence.
Seller Concession: When the seller pays a part of the borrower(s)' closing costs.
Servicer: A loan servicer helps process the loan payments, responds to inquiries, keeps track of principal and interest paid, manages the escrow account and may initiate foreclosure. A servicer may or may not be the same company that originally provided the loan.
Settlement Agent: A party who helps complete a transaction between a buyer and a seller. Also known as Closing Agents.
Short Sale: When a homeowner is in financial distress and sells their property for less than the amount due on the mortgage.
Single Family Residence: Developed property that serves as the permanent dwelling to a single-family unit.
Subordinate Financing: Debt financing that is ranked behind that held by secured lenders in terms of the order in which the debt is repaid. The secured lenders will be paid back before subordinate debt holders.
Survey: A mortgage survey includes staking the property corners, accurate location of the buildings, drives, fences and other onsite improvements, any encroachments on the property and a survey map.
TBD (Non TRID Application): TBD approvals are for buyers obtaining financing who get their loan file underwritten to the furthest extent possible without having yet identified a property. The income, assets, credit, etc. are examined without a property yet determined.
Title Commitment: The document a title company or real estate firm creates as a promise to issue a title insurance policy.
Title Company: A company that verifies the title to the real estate is legitimately given to the home buyer.
Title-only Borrower: This is when a buyer is only on the title, but not on the loan.
Tolerance Cure: A form that outlines all the charges and fees you can anticipate paying during the closing process.
Transfer Tax: A tax charged by state or local government to complete a sale of property from one owner to another.
Trust: A fiduciary relationship in which a trustor gives another party, known as the trustee, the right to hold title to property or assets for the benefit of a third party.
Trustee: A person or firm that holds and administers property or assets for the benefit of a third party.
VA Funding Fee: A one-time fee paid to the Department of Veterans Affairs that supports the VA loan program. Veterans may or may not be exempt from this charge based upon their disability status.
Warehouse Lending: A way for a bank to provide loans without using its own capital. Financial institutions provide warehouse lines of credit to mortgage lenders and the lenders must repay the financial institutions.
Wet Signature: When a person uses a pen or seal to sign their name on a physical paper document.