Mortgage and Home Buying Glossary
Plain-English definitions of mortgage, real estate, escrow and closing terms, from APR and appraisal to underwriting and wire fraud.
- Addendum
- A document added to a contract to include or change terms.
- Adjustable-Rate Mortgage (ARM)
- A loan with a fixed rate for an initial period, then a rate that adjusts with a market index.
- Amendatory Clause
- An FHA and VA contract term letting the buyer cancel if the appraisal is below the price.
- Amortization
- Paying off a loan with regular payments that cover interest and gradually reduce the balance.
- Annual Percentage Rate (APR)
- The yearly cost of a loan including interest and certain fees, used to compare loan offers.
- Appraisal
- An independent estimate of a home's market value, ordered by the lender.
- Appraisal Contingency
- A contract clause that protects you if the home appraises for less than the purchase price.
- Appraisal Gap
- The difference between the purchase price and a lower appraised value.
- Appraisal Waiver
- A lender's decision to accept a home's value without a traditional appraisal, on some conventional loans.
- As Is
- A sale where the seller won't make repairs, though the buyer can usually still inspect.
- Asset Verification
- Proof that your down payment, closing costs and reserves come from acceptable, documented sources.
- Automated Underwriting
- Software from Fannie Mae, Freddie Mac and FHA that evaluates a loan file and sets its requirements.
- Bank Statement Loan
- A mortgage for self-employed borrowers that uses bank deposits instead of tax returns to verify income.
- Bridge Loan
- Short-term financing that covers a gap, such as buying a new property before selling another.
- Buyer's Agent Commission
- The fee paid to a real estate agent representing the buyer, often 2% to 3% of the price.
- Buying Power
- The home price your income, debts, savings and credit support at today's rates.
- Cash to Close
- The total amount you bring to closing: down payment plus closing costs, minus deposits and credits.
- Cash-Out Refinance
- A refinance for more than you owe, paying you the difference in cash.
- Certificate of Eligibility (COE)
- The VA document confirming a borrower is eligible for a VA home loan and their entitlement.
- Clear to Close
- The underwriter's final sign-off that all conditions are met and the loan can close.
- Closing
- The final step of a home purchase, when documents are signed, funds change hands and ownership transfers.
- Closing Costs
- Fees and charges for the loan and the purchase, paid at closing, often 2% to 5% of the price.
- Closing Date
- The date in the contract when the sale is set to be completed and ownership transfers.
- Closing Disclosure
- The five-page form with your final loan terms and closing costs, received 3 business days before closing.
- Comparable Sales (Comps)
- Recent sales of similar nearby homes, used to set offer prices and appraised values.
- Conditional Approval
- An underwriter's approval that depends on you providing a list of remaining items.
- Conforming Loan Limit
- The largest loan Fannie Mae and Freddie Mac will buy, set each year by the FHFA.
- Contingency
- A condition in a contract that must be met for the sale to go forward, letting you cancel if it isn't.
- Conventional Loan
- A mortgage not insured by the government, usually following Fannie Mae or Freddie Mac rules.
- Counteroffer
- A response to an offer that changes one or more terms, replacing the original offer.
- Credit Report
- The record of your borrowing and payment history that credit scores are based on.
- Credit Score
- A three-digit number from 300 to 850 that predicts how likely you are to repay debt.
- Debt-to-Income Ratio (DTI)
- Your monthly debt payments, including the new mortgage, divided by your gross monthly income.
- Deed
- The legal document that transfers ownership of real estate from the seller to the buyer.
- Deed of Trust (Mortgage)
- The document that gives the lender a lien on your home as security for the loan.
- Discount Points
- Upfront fees, each equal to 1% of the loan amount, paid to lower your interest rate.
- Down Payment
- The part of the purchase price you pay in cash instead of borrowing.
- Down Payment Assistance (DPA)
- Grants or low-cost loans from state and local programs that help buyers with a down payment.
- DSCR Loan
- An investment property loan qualified by the property's rent instead of your personal income.
- Earnest Money
- A good-faith deposit, often 1% to 3% of the price, held in escrow and credited to you at closing.
- Easement
- A legal right for someone else to use part of your property for a specific purpose.
- Escalation Clause
- An offer term that automatically raises your price above competing offers, up to a cap.
- Escrow
- An arrangement where a neutral third party holds money and documents until a sale's conditions are met.
- Escrow Account
- An account your servicer uses to collect and pay your property taxes and insurance.
- Escrow Agent
- The neutral party that holds funds and documents and carries out the closing.
- Escrow Analysis
- The servicer's yearly review of your escrow account, which can change your monthly payment.
- FHA Loan
- A mortgage insured by the Federal Housing Administration, with low down payments and flexible credit.
- FHA Mortgage Insurance Premium (MIP)
- FHA's mortgage insurance: 1.75% upfront plus an annual premium paid monthly.
- Final Walkthrough
- The buyer's last visit to the home before closing to confirm its condition and agreed repairs.
- Financing Contingency
- A contract clause that lets you cancel and keep your deposit if your mortgage isn't approved.
- First Mortgage Payment
- Usually due on the first of the second month after closing, because interest is paid in arrears.
- First-Time Homebuyer
- For most mortgage programs, someone who hasn't owned a home in the past three years.
- Fix and Flip Loan
- A short-term loan to buy and renovate a property for resale, often funding part of the rehab.
- Fixed-Rate Mortgage
- A loan whose interest rate and principal-and-interest payment stay the same for the entire term.
- Float-Down
- A rate lock option that lets you take a lower rate if market rates fall before closing.
- Flood Insurance
- Separate insurance for flood damage, required for federally backed loans in high-risk flood zones.
- Front-End Ratio
- Your new monthly housing payment divided by your gross monthly income.
- Funding
- When the lender sends the loan money to escrow so the sale can be completed.
- Gift Funds
- Money given to you, usually by family, to help with a down payment or closing costs.
- Gift Letter
- A signed statement from the person giving you money confirming it doesn't need to be repaid.
- Gross Monthly Income
- Your income before taxes and deductions, which lenders use to qualify you.
- Hard Credit Inquiry
- A credit check made when you apply for credit, which can lower your score slightly.
- HELOC (Home Equity Line of Credit)
- A revolving credit line secured by your home's equity, usually with a variable rate.
- HOA Dues
- Regular fees paid to a homeowners association for shared areas, services and reserves.
- HOA Resale Certificate
- A packet from the homeowners association with dues, finances, rules and any amounts owed.
- Home Equity
- The value of your home minus what you owe on it.
- Home Inspection
- A visual examination of a home's condition by a professional inspector, paid for by the buyer.
- Home Sale Contingency
- A contract clause making your purchase depend on selling your current home first.
- Home Warranty
- A service contract that covers repair or replacement of home systems and appliances for a fee.
- Homeowners Insurance
- Insurance that covers damage to the home and liability, required by every mortgage lender.
- Homestead Exemption
- A reduction in property taxes on your primary home, available in many states.
- Inspection Contingency
- A contract clause giving you time to inspect the home and cancel or negotiate repairs.
- Intent to Proceed
- Your confirmation, after receiving a Loan Estimate, that you want the lender to move ahead.
- Interest Rate
- The yearly cost of borrowing, as a percentage of your loan balance.
- Jumbo Loan
- A mortgage larger than the conforming loan limit, with stricter credit, down payment and reserve rules.
- Lender Credit
- Money from the lender toward your closing costs in exchange for a higher interest rate.
- Letter of Explanation (LOE)
- A short signed letter answering an underwriter's question about something in your file.
- Lien
- A legal claim against a property as security for a debt.
- Listing Agent
- The real estate agent who represents the seller and markets the home.
- Loan Application (Form 1003)
- The standard mortgage application listing your income, assets, debts, employment and the property.
- Loan Estimate
- A standard three-page form showing a loan's terms, payment and closing costs, sent within 3 business days of applying.
- Loan Term
- The length of time you have to repay a mortgage, most often 30 or 15 years.
- Loan-Level Price Adjustment (LLPA)
- Fannie Mae and Freddie Mac pricing charges based on credit score, loan-to-value and other risk factors.
- Loan-to-Value Ratio (LTV)
- Your loan amount divided by the home's price or appraised value, whichever is lower.
- Minimum Property Requirements (MPRs)
- FHA, VA and USDA standards a home must meet to be safe, sound and secure.
- Mortgage Broker
- A licensed professional who arranges your loan with one of many lenders rather than lending directly.
- Mortgage Servicer
- The company that collects your payments, manages escrow and handles questions after closing.
- Mortgagee Clause
- The wording on an insurance policy that names your lender to be paid if the home is damaged.
- Multiple Listing Service (MLS)
- The database real estate brokers use to share listings, which feeds most home search websites.
- Non-QM Loan
- A mortgage that doesn't meet the federal Qualified Mortgage rules, used for non-traditional borrowers.
- Offer Price
- The amount you propose to pay for a home in your offer.
- Origination Fee
- A lender or broker charge for processing and making the loan, often a percentage of the loan.
- PITI (Principal, Interest, Taxes and Insurance)
- The four parts of a typical monthly mortgage payment, the total lenders use to qualify you.
- PMI Removal
- Ending private mortgage insurance once you reach enough equity, by request at 80% or automatically at 78%.
- Possession Date
- When the buyer gets the keys and may move in, usually at closing.
- Pre-Approval
- A lender's conditional commitment to lend up to an amount, based on verified income, assets and credit.
- Pre-Approval Letter
- A letter from a lender, sent with an offer, showing the buyer is approved to borrow up to an amount.
- Pre-Qualification
- A quick estimate of what you could borrow, based on information you report but don't verify.
- Prepaid Items
- Costs paid ahead at closing, like the first year of insurance, interest and escrow deposits.
- Prepayment Penalty
- A fee for paying off a loan early, common on investment property loans.
- Private Mortgage Insurance (PMI)
- Insurance that protects the lender on conventional loans with less than 20% down, removable later.
- Promissory Note
- Your signed promise to repay the mortgage, with the rate, payment and terms.
- Property Taxes
- Annual taxes charged by local governments based on a home's assessed value.
- Purchase Agreement
- The signed contract between buyer and seller that sets the price, terms and deadlines for a home sale.
- Radon Testing
- A test for radon, a radioactive gas from the soil that can build up in homes.
- Rate Lock
- A lender's commitment to hold your interest rate and pricing for a set number of days.
- Ratified Contract
- A purchase agreement that both buyer and seller have signed and delivered, making it binding.
- Recording
- Filing the deed and deed of trust with the county so the ownership change is public record.
- Refinance
- Replacing your mortgage with a new one, usually for a lower rate, a different term or cash out.
- Rent Schedule
- An appraiser's estimate of market rent for a property, used to qualify investment loans.
- Repair Request
- A buyer's written request, after inspection, for repairs, a credit or a lower price.
- Reserves
- Savings left after closing, measured in months of mortgage payments.
- Residual Income
- The money a VA borrower has left each month after major expenses, compared to a regional standard.
- Seller Concessions
- Money the seller agrees to pay toward the buyer's closing costs, within program limits.
- Seller Disclosure
- A form where the seller reports known problems and facts about the home.
- Servicing Transfer
- When your loan's servicing moves to a new company. Your terms stay the same.
- Settlement Statement
- Escrow's itemized accounting of every dollar paid and received by buyer and seller at closing.
- Sewer Scope
- A camera inspection of the sewer line from the house to the street.
- Survey
- A professional map of a property's boundaries, improvements and easements.
- Title Commitment
- The title company's report of what it will insure, what must be fixed first, and what's excluded.
- Title Company
- A company that researches ownership records, issues title insurance and often handles closing.
- Title Insurance
- A one-time policy that protects against losses from past problems with a property's ownership.
- Title Search
- A review of public records to confirm who owns a property and find liens or other claims.
- Transfer Tax
- A state or local tax charged when real estate changes hands.
- TRID (TILA-RESPA Integrated Disclosure)
- Federal rules requiring the Loan Estimate and Closing Disclosure, and the three-day review before closing.
- Underwriting
- The lender's review of your credit, income, assets and the property to make the final loan decision.
- Underwriting Conditions
- The documents and items an underwriter requires before the loan can close.
- USDA Guarantee Fee
- USDA's mortgage insurance: 1% of the loan upfront plus 0.35% a year, paid monthly.
- USDA Loan
- A zero-down mortgage backed by the U.S. Department of Agriculture for eligible rural and suburban areas.
- VA Funding Fee
- A one-time fee on most VA loans, from 1.25% to 3.3% of the loan, that can be financed.
- VA Loan
- A mortgage guaranteed by the Department of Veterans Affairs for eligible veterans and service members, with no down payment.
- Verification of Employment (VOE)
- The lender's confirmation with your employer that you're employed, often repeated just before closing.
- Wholesale Lender
- A lender that offers loans through mortgage brokers rather than directly to consumers.
- Wire Fraud
- A scam where criminals send fake wiring instructions to steal a buyer's closing funds.
- Wood-Destroying Insect (Termite) Inspection
- An inspection for termites and other insects that damage wood, sometimes required by lenders.