Mortgage Glossary

As your trusted Ohio Mortgage Broker, I understand how overwhelming the home financing process can be. This comprehensive glossary is designed to demystify mortgage terminology, and make your journey to homeownership as smooth as possible. Whether you are a first-time buyer or not, understanding these terms employwers you to make infomred decisions. From adjustable-rate mortgage to escrow accounts, my glossary covers a wide range of topics with clear explanations and practical examples. Let me be your partner in achieving your homeownership dreams.

A | B | C | D | E | F | G | H | I-J-K-L | M-N-O | P | Q-R | S | T | U-V | W-X-Y-Z

1003

Commonly used mortgage loan application developed by Fannie Mae. Sometimes called the Uniform Residential Loan Application.

A

Adjustable Rate Mortgage (ARM)

A type of mortgage loan characterized by interest rates that automatically adjust or fluctuate in concert with certain market indexes. Generally an ARM begins with an introductory or initial interest rate, which then may rise or fall, but monthly payments may not exceed the ARM loan cap.

Amortization

The paying off of debt with a fixed repayment schedule in regular installments over time.

Annual Percentage Rate (APR)

Expressed as a percentage that represents the actual yearly cost of funds over the term of a loan. This includes any fees or additional costs associated with the transaction.

Appraisal

Report that states an estimate of the property value as determined by a qualified, independent, third-party called an appraiser.

Appreciation

The increase in value of property due to either improvements to the property or local real estate sales.

Assumption

The act of assuming another person’s existing mortgage by a qualified buyer.

B

Balloon Mortgage

A type of mortgage that generally has a lower rate but does not pay off the balance of the loan before the end of the loan term. This requires the borrower to make a lump sum payment at the end of the loan term to pay the loan balance off in full.

Borrower

A person who receives a mortgage loan with an obligation to repay the mortgage loan plus interest.

Bridge Loan

A short term loan taken out against a borrower’s current property to finance the purchase of a new property.

Buy Down

A mortgage transaction where an interested party (seller, builder, etc.) pays fees to reduce the monthly payment of a mortgage for the entire loan term or a set number of years.

C

Cash Out Refinance

A refinance option where the new mortgage is for a higher loan amount that is needed to payoff the existing mortgage, resulting in the borrower receiving cash back at closing.

Closing

The last step in financing a home loan. The closing is when you and all the other parties in a mortgage loan transaction sign the necessary documents.

Closing Costs

The expenses, over and above, the price of the property that buyers and sellers normally incur to complete a real estate transaction.

Closing Disclosure (CD)

A 5 page form that provides final details about the mortgage loan, including loan terms, projected monthly payment, and how much you will pain in fees and other costs.

Co-Borrower

Any additional person on the loan application. This additional borrower’s income and credit will be used to qualify for the mortgage.

Collateral

The subject property. Something pledged to the mortgage lender as security for the repayment of the mortgage.

Condominium

Condo for short. One of the main property types, usually a building, or multiple buildings, containing individual owned homes.

Conforming Loan

A mortgage loan with a loan amount equal to or less than the conforming loan limit.

Construction Loan

Type of mortgage loan used to finance the construction of a home.

Consumer Handbook on Adjustable Rate Mortgages (CHARM)

Handbook that is required to be provided to a borrower who is considering an Adjustable Rate Mortgage (ARM) for their mortgage.

Conventional Loan

A mortgage that complies with guidelines set by Fannie Mae or Freddie Mac.

D

Debt to Income Ratio

One aspect lenders use to determine a borrower’s ability to repay the mortgage loan. Calculated by dividing the minimum debt payments per the credit report by the gross monthly income.

Department of Housing and Urban Development (HUD)

A federal agency that oversees the Federal Home Administration (FHA).

Discount Points

Fees paid to the mortgage lender in exchange for a lower interest rate.

Down Payment

The difference between the purchase price and the loan amount. The borrower pays this at closing.

Due On Sale Clause

Clause that is included in the mortgage document, signed at closing, requiring the borrower to pay the outstanding balance of the loan if any of the items listed are violated.

E

Earnest Money

Money paid by the purchaser at the time the sale contract is accepted by the seller. Represents the buyer’s good faith to follow through on the contract to purchase the home.

Equal Credit Opportunity Act

Law enacted in 1974 that makes it illegal for a creditor to discriminate against an applicant based on race, color, religion, national origin, sex, marital status or age.

Equity

Homeowner’s interest in their home. The difference of the value of the property and the outstanding balances of any mortgages on said property.

Escrow Account

An account, generally required by lenders, that the lender will deposit portions of your monthly mortgage payment in order to pay the property taxes and homeowners insurance when they come due.

F

Fair Market Value

The price a buyer is willing to pay for a property.

Fannie Mae

Nickname for the Federal National Mortgage Association (FNMA).

Federal Housing Administration (FHA)

Government agency that sets the minimum underwriting standards for FHA mortgages.

Fixed Rate Mortgage

A mortgage loan that has a fixed interest rate for the entire term of the loan.

Flood Insurance

Type of insurance that insures a dwelling for losses caused by flooding.

Foreclosure

Legal process a mortgage holder initiates when a homeowner fails to pay the mortgage.

Freddie Mac

Nickname for the Federal Home Loan Mortgage Corporation (FHLMC).

G

Gift

Relating to a mortgage, when a family member gives you money to use towards the purchase of a home, with no expectation of being repaid.

Good Faith Estimate (GFE)

A form that a loan officer was required to provide a borrower estimating the details of the mortgage transaction, including closing costs and monthly payment. This form was replaced by the Loan Estimate in 2015.

H

Hazard Insurance

Also known as homeowner’s insurance, insurance coverage for the actual structure of your home, covering hazards such as fire damage. Your homeowner’s insurance policy will also include other types of damage not related to the physical structure of the property.

Home Equity Loan

Generally a 2nd mortgage.

Home Inspection

A limited inspection conducted by a home inspector to assess the condition of the property. This is not the same as an appraisal.

Homeowners Association (HOA)

An organization of homeowners of a subdivision or condominium for the purpose of making and enforcing rules for the properties in the subdivision or condominium.

I-J-K-L

Jumbo Loan

A mortgage with a loan amount that exceeds the conforming loan limits.

Lien

A legal right granted by the owners of the property to a creditor.

Loan to Value Ratio (LTV)

Ratio of a loan amount to the value of the property.

M-N-O

Mortgage

Legal agreement between a borrower and a creditor, by which the creditor lends money in exchange for a lien on the borrower’s property. The lien is released when the debt has been paid in full.

Mortgage Broker

An intermediary who brings a mortgage borrower and a mortgage lender together. The benefit being, that a mortgage broker has access to many lenders to help a client find the best option for their individual situation.

Mortgage Insurance

An insurance policy required for some loan programs, to protect the lender should the borrower default on the mortgage.

Mortgage Interest

The interest charged on a mortgage loan that is paid in addition to the principal.

Mortgage Term

The length of time that you are committed to the mortgage, usually expressed in years.

Mortgagee

The mortgage lender.

Mortgagor

The borrower

Note

Promissory note, tied to a specific mortgage loan. The borrower’s promise to repay the balance of the loan, plus interest.

P

P&I

Principal and Interest that is paid monthly for a mortgage.

PITI

Principal, Interest, Taxes, and Insurance that is paid monthly for a mortgage.

Points

Fees paid by a borrower to the lender to reduce the interest rate.

Pre-Qualification

Generally one of the first steps in the mortgage process. A loan officer reviews your credit and financial history, including credit report, application, income and asset documentations to determine if it appears the borrower will qualify for a mortgage loan.

Principal

The outstanding balance of your mortgage loan.

Private Mortgage Insurance (PMI)

An insurance policy required for some loan programs, to protect the lender should the borrower default on the mortgage.

Property Tax

Real Estate tax, determined, in Ohio, by the county auditor and treasurer. It is based on the value of the property (structure(s) and land)

Q-R

Rate Lock

An agreement between the borrower and the lender to lock a specific interest rate in over a set time period.

RESPA

Real Estate Settlement Procedures Act (1974) governs the mortgage settlement process, requiring all parties inform borrowers about all closing costs, servicing and escrow practices, and business relationships.

Right of Rescission

The right of a borrower to cancel a new refinance mortgage within 3 days of closing.

S

Sales Contract

A legally binding agreement between a seller and a buyer disclosing the terms for transfer of real property.

Second Mortgage

Any mortgage that is taken out by a borrower on a property that already has an existing mortgage.

Servicer

The company that a borrower pays their mortgage payment to. Not always the same as their lender.

Survey

An inspection of the physical aspect of the property, used to determine if there are any potential issues with boundaries (structures built over the property line, etc.).

T

Title Insurance

Lenders Title Insurance protects the lender against problems with the title to your property, such as someone with a legal claim against the home.

Truth in Lending Act

Federal law requiring disclosure of terms and costs to standardize the way costs associated with borrowing are calculated and disclosed.

U-V

Underwriting

The process lenders utilize to determine whether a borrower’s risk is acceptable to offer a mortgage loan.

Uniform Settlement Statement

Standard form itemizing settlement costs to the borrower. Replaced by the Closing Disclosure.

Veterans Administration (VA)

Government agency providing patient care, veterans’ benefits and other services to veterans of the U.S. armed forces and their families. VA mortgages are guaranteed by the VA.

W-X-Y-Z

Warranty Deed

A deed that guarantees a clear title to the buyer of real property.