Mortgage Glossary

A guide to some of the common terminology and acronyms used in the mortgage process.

Adjustable Rate Mortgage (ARM):  A mortgage in which the interest rate adjusts periodically based on movements in an index, such as the one year treasury rate. 

ALTA Title Insurance:  A title insurance policy that insures the mortgage against any future claims to title.

Annual Percentage Rate (APR):  An overall interest rate based on all costs involved with the loan, such as lender fees, points, and mortgage insurance.

Appraisal:  An estimate of the property value, generally based on comparable sales.

As-Built Survey:  A drawing of the property and all structures, improvements, easements, and other features. 

Cash Out Refinance:  A refinance in which the borrower obtains more than a small amount of funds back at closing.

Closing:  A meeting between borrower and the settlement agent (generally a title company), where final loan documents are signed and monies disbursed.

Closing Costs:  Charges from the lender, title company, insurance company, recorder's office, and others to provide services that facilitate the mortgage.

Closing Disclosure (CD):  Standardized document that spells out all costs, montly payment, and other information about the final terms of the loan.

Condominium:  A property owned as a group, with common grounds.

Credit Score:   A numerical score given to an individual that helps determine credit worthiness.  These come from Trans Union, Equifax, and Experian.

Debt Ratio:  Monthly obligations divided by gross monthly income.

Deed:  Legal document that conveys title to a property.

Deed of Trust:  Legal document that pledges real property to secure a mortgage.

Discount Points (Points):  Additional money paid at closing to purchase a better interest rate.

Down Payment:  Funds paid up front to make up the difference between the purchase price and the mortgage amount.

Earnest Money:  Funds given by a buyer as part of a purchase agreement to bind the transaction or assure payment.

Easement:  An interest in property, owned by someone other than the person in title, which grants specific limited use or privilege.

Equity:  The difference between market value and current indebtedness.

Escrow Officer:  Neutral third party, typically a title company, which facilitates the closing.

Escrow Account:  Funds held by the lender to pay for repairs after closing, or for recurring expenses such as property taxes and insurance.

Fannie Mae (FNMA) / Freddie Mac (FHLMC):   Quasi-government agencies that set guidelines for and invest in conventional mortgages.

Federal Housing Authority (FHA):   The division of the Department of Housing and Urban Development that sets guidelines for and insures FHA mortgages.

Fixed Rate Mortgage:  A mortgage with a set interest rate for the entire term of the loan.

Flood Insurance:  Mandatory insurance for some homes that are built in a designated flood zone.

Gift Funds:  Money given to the borrower by someone else to pay for down payment or closing costs.

Hazard Insurance:  Also known as homeowne'rs insurance, a policy that protects the property from specific losses such as fire or windstorms.

Home Inspection:  An inspection of the property's physical condition.

Investment Property:  Property owned for the purpose of income, not as a primary residence.

Loan Estimate:   Standardized document that spells out all costs, monthly payment, and other information about the proposed loan.

Mortgage Insurance:  Money paid to insure the loan against loss, typically required on any loan with less than 20% down payment.  Also known as Mortgage Insurance Premium (MIP) or Private Mortgage Insurance (PMI).

Multi-Unit:  A property with more than one living unit, such as a duplex, triplex, or fourplex.

Owner's Title Insurance:  A title insurance policy that insures the new property owner against any future claims to title.

Power of Attorney:   A legal document that gives one person authority to act on another's behalf.

Preapproval:  A stage of qualifying where the borrower's income, assets, and credit have been approved by an underwriter.

Preliminary Title Report (Prelim):  The title report generated at the beginning of the transaction process.

Prepaids:  Interest, taxes, and insurance paid up front.

Prequalification:  A stage of qualifying where the loan originator has reviewed the borrower's credit, assets, and income.

Prequalification Letter:  A letter written by a loan originator that documents review of credit, assets, and income -- and the originator's determination that the buyer qualifes for the loan.

Primary Residence:  The borrower's home that they occupy as their principal place of residence.

PITI:  Principal, interest, taxes, and insurance -- the complete monthly payment on a mortgage.

Processor (Loan Processor):  The individual who packages the loan presented by the loan originator for submission to the underwriter, confirming details and verifying numbers.

Purchase and Sale Agreement (Purchase Contract):  The agreement made between buyer and seller of a property, containing the details of the sale.

Rate and Term Refinance:  A refinance with the purpose of lowering interest rate, loan term, or monthly payments.

Quit Claim Deed:  A legal document that transfers any interest or claim to a property from one party to another party.  This transfer does not give any warranty as title is passed.

Rate Lock:  Securing the interest rate on the mortgage for a specific length of time.  

Reserves:  Funds left over in depository accounts after closing.

Second Home:  Vacation property which is not used as investment property.

Servicer:  The entity (usually a bank) which collects payments and manages the escrow account for a closed mortgage.

Underwriter:  The individual who reviews the loan file and confirms that all aspects meet investor requirements.

Veteran's Administration (VA):  The government entity which sets guidelines for and insures VA mortgages.

VA Funding Fee:  The fee charged by the Veteran's Adminstration for usage of the VA loan benefit.

Verification:  A form, usually written, used to confirm numbers on employment, rent, or bank balances.

Warranty Deed:   A legal document that transfers any interest or claim to a property from one party to another party.  The original owner warrants that they hold clear title and the right to transfer the title.

Well / Septic Testing:  Tests done to confirm the adequacy of private water and/or sewage systems.

Zoning:  The type of use allowed on a property, established by the local governing authority.

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