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A

Adjustable-Rate Mortgage (ARM)

A type of mortgage in which the interest rate on the note varies throughout the life of the loan. The interest rate may be fixed for a period of time (i.e. introductory rate) after which the rate adjusts periodically based on an index. When the loan adjusts, monthly payments can go up or down, depending on current rates. Also referred to as a variable-rate mortgage.

Amortization

Repayment of a mortgage debt with periodic payments of both principal and interest. The Amortization schedule is the amount you pay each month in principal and interest to ensure your loan is repaid by the end of your loan's term.

Annual Percentage Rate (APR)

The APR expresses the cost of the loan on a yearly basis as a percentage.  It includes interest charges as well as points and other costs.

Appraisal

An estimate of your property's fair market value as determined by an independent Appraiser. The valuation is based on a variety of factors, including recent sales in the area and current market conditions. Also referred to as a valuation.

Appreciation

An increase in value, the opposite of depreciation.

B

Balloon Mortgage

A mortgage loan with initially low interest payments, but that requires one large payment due upon maturity (for example, at the end of five or seven years).

Borrower

The person who receives a mortgage with the obligation to repay the loan's principal and interest.

Broker

An individual employed on a fee or commission basis as agent to bring buyers and sellers together and assist in negotiating contracts between them. 

Buydown

A buydown occurs when one party pays an initial lump sum in exchange for a lower interest rate on the mortgage.

C

Cash Out Refinance

When the principal amount of a new mortgage involved in refinancing is greater than the principal amount outstanding of the existing mortgage being refinanced, and all or a portion of the equity is converted to cash.

Certificate of Eligibility (COE)

A document issued by the Veterans Administration which verifies a veteran's eligibility for a VA loan.

Closing

In real estate, the delivery of the deed, the signing of note and the disbursement of funds necessary to consummate a sale or loan transaction. Also referred to as a settlement.

Collateral

Property pledged as security for a debt, such as the real estate as security for a mortgage.

Collections

The efforts a mortgage company takes to collect past due payments.

Conventional Loan

A mortgage not insured or guaranteed by a government agency such as the Department of Veteran Affairs (VA), the Federal Housing Administration (FHA), or the Department of Agriculture (USDA).

Convertible ARM

An Adjustable-Rate Mortgage loan that can be converted into a fixed-rate mortgage during a certain time period.

Credit Report

A report run by an independent credit agency which verifies certain information concerning an applicant's credit standing.

D

Debt-to-Income Ratio (DTI)

A percentage calculated by dividing a borrower's total monthly debt payments (i.e. rent or mortgage payments, other loans, credit cards, etc.) by gross monthly income. 

Deed

A legal document under which ownership of a property is transferred or conveyed from one party to another.

Deed-in-Lieu of Foreclosure

The transfer of title from a borrower to the mortgage company to satisfy the mortgage debt and avoid foreclosure, also called a voluntary conveyance.

Default

A borrower is in default when they fail to meet the terms of their loan agreement. Usually this is based on failure to make payments on time.

Deficiency Balance

The difference between what a foreclosed home sold for and the remaining mortgage balance. The mortgage company may require the borrower to pay the amount of the deficiency balance.

Deferred Payments

Payments that are authorized to be postponed as part of a workout process to avoid foreclosure.

Delinquency

The failure of the borrower to make timely payments specified under a loan agreement.

Department of Veterans Affairs (VA)

The federal agency that oversees veteran services including home financing programs.

E

Entitlement

The amount the VA will repay the lender if the borrower defaults on a VA loan. 

Equity

The net value of an asset. In the case of real estate, it would be the difference between the present value of the property and mortgage amount on that property.

Escrow

The deposit by a borrower with the lender to pay property taxes, homeowners insurance and mortgage insurance when they become due. In some parts of the country, escrow of taxes and insurance premiums are called impounds or reserves.

Escrow Account

The segregated trust account in which escrow funds are held.

Escrow Analysis

A periodic review of escrow accounts to make sure that there are sufficient funds to pay the taxes and insurance when they become due.

F

Fixed-Rate Mortgage

A mortgage with an interest rate and payments remains the same for the entire loan. 

Forbearance

The act of refraining from taking legal action despite the fact that the mortgage is in arrears. A forbearance is usually granted when a homeowner makes satisfactory arrangements to bring the overdue mortgage payments up to date.

Foreclosure

A legal process where the lender takes possession of a property after a borrower has not met the mortgage's terms of repayment. Also known as a repossession; often homes are re-sold to pay off borrowers' debt.

Foreclosure Prevention

Steps by which the mortgage company works with the homeowner to find a permanent solution to resolve an existing or impending loan delinquency.

Funding Fee

A fee paid directly to the VA to help offset losses on defaulted loans. 

G

Gross Monthly Income

The total amount of income before taxes and expenses are deducted. This amount may include overtime pay, bonuses, commissions and income from dividends or interest, provided that the individual can show consistent history of receiving such income.

Guaranty

For VA loans, the amount of money the Department of Veteran Affairs will reimburse a lender upon the default of a VA mortgage.

H

Hardship

A hardship is the reason why a homeowner is having trouble making their mortgage payments, such as job loss, medical emergency or illness, divorce, etc. A hardship may be short term (less than 6 months) or long term (more than 6 months). When contacting the mortgage company or a housing counselor for assistance, homeowners may be required to demonstrate/explain any hardship they are experiencing.

Hazard Insurance

Insurance coverage which provides compensation to the insured in case of property loss or damage.

Home Affordable Modification Program (HAMP)

The Home Affordable Modification Program is part of the government’s Making Home Affordable Program and provides homeowners an opportunity to modify their loan to more affordable monthly payments. For more information about this program, please visit MakingHomeAffordable.gov.

Home Affordable Refinance Program (HARP)

The Home Affordable Refinance Program was part of the government's Making Home Affordable Program and provided homeowners an opportunity to refinance their loan to more affordable monthly payments — even if they had limited or no equity in their home. The application deadline for this program was December 31, 2018. For more information about this program, please visit MakingHomeAffordable.gov.

Home Equity Line of Credit

An open-end mortgage that permits borrowers to obtain cash advances based on an approved line of credit.

Homeowners Insurance

Insurance carried by the homeowner to protect the dwelling against fire and other hazards.

I

Inspection

An assessment of a property's condition prior to sale. Typically performed by a professional home inspector.

Interest Rate

The percentage paid for the use of money.

Interest-Only Mortgage

A mortgage where the homeowner pays only the interest on the loan for a specified amount of time.

Interest Rate Reduction Refinance Loan (IRRRL)

A refinance for a VA loan to a new VA loan to lower the interest rate. 

Investment Property

A property used for the purpose of generating income or gaining profit from the resale or tax write-offs.

Investor

The owner of the loan on a property.

J

Jumbo Loan

A mortgage which is larger than the limits set by Fannie Mae and Freddie Mac. 

L

Lien

A claim on a property used as collateral against a debt. 

Loan-to-Value Ratio (LTV)

A percentage calculated by taking the mortgage amount and dividing by the appraised value or sales price. 

Loss Mitigation

When the homeowner and the mortgage company are working together to determine the appropriate option/workout solution to bring the mortgage current and avoid foreclosure.

M

Modification

Any change to the terms of a mortgage loan, including changes to the interest rate, loan balance or loan term.

Mortgage

A loan used to purchase or refinance a home. The term also describes the legal document that pledges property to the mortgage company as security for the repayment of the loan.

Mortgage Company

Mortgage companies may originate (i.e. lender) as well as service the loan. The lender who originated the mortgage may or may not service the loan. When the mortgage company services the mortgage, they do the following: collect the homeowner’s mortgage payments, pay taxes and insurance, generally manage your escrow accounts (i.e., they “service” the loan), and provide customer service and support.

Mortgage Insurance

Insurance that protects the mortgage company against losses caused by a homeowner's default on a mortgage loan. Mortgage insurance (or MI) typically is required if the homeowner's down payment is less than 20% of the purchase price.

Mortgage Release (Deed-in-Lieu of Foreclosure)

The transfer of title from a homeowner to the mortgage company to satisfy the mortgage debt and avoid foreclosure, also called a Deed-in-Lieu of Foreclosure or a voluntary conveyance.

Mortgagee

A lender to whom property is conveyed as security for a loan.

Mortgagee Clause

A clause in property insurance policies that protects the interests of the lender. This clause creates a separate contract between the mortgagee and the insurer. It gives lenders the right to collect insurance payouts in certain circumstances such as when the property is lost to fire.

Mortgagor

One who borrows money, typically a homeowner.

O

Origination Fee

The fee lenders charge to originate the mortgage. Unlike a discount fee or "points" this fee does not impact the mortgage interest rate.

P

PITI

Principal, Interest, Taxes and Insurance are the components of a mortgage payment.

Pre-foreclosure Sale

The process in which a mortgage company works with a delinquent homeowner to sell the house by a real estate agent prior to the foreclosure sale. The sale price is less than what is owed on the mortgage.

Pre-qualification

The evaluation of a potential borrower's financial status to determine the size and type of mortgage available.

Prime

Mortgages provided to those with good credit scores, a history of stable income, low debt ratios and ample down payment.

Principal

The original amount of money lent or remaining balance of a loan, excluding interest. Or, the portion of each mortgage payment used to pay down the amount owed on the mortgage.

Private Mortgage Insurance (PMI)

This insurance protects the lender against financial loss by a borrower defaulting on the mortgage. Often required on mortgages with a down payment below 20% (different guidelines apply to FHA and VA loans). PMI is added to the monthly payment.

R

REALTOR®

Real estate agents that belong to the National Association of REALTORS®. Real estate agents are licensed and earn a commission when representing home sellers and buyers in real estate transactions.

Refinance

The payment of a debt from the proceeds of a new loan using the same property as security.

Repayment Plan

A homeowner promises to pay down past-due amounts on a mortgage over a specified time period while still making regular monthly payments.

S

Servicer

After a mortgage loan closes, the loan servicer collects the payments, manages escrow accounts, pays escrow taxes and insurance, and manages delinquent payments.

Short Sale (also called Pre-foreclosure)

The process in which a mortgage company works with a delinquent homeowner to sell the house by a real estate agent prior to the foreclosure sale. The sale price is less than what is owed on the mortgage.

Streamline

A rate reduction refinance which requires less documentation than a full package mortgage application.

T

Title

Written evidence of the right to or ownership interest in property.

V

VA Loan

A mortgage loan guaranteed by the U.S. Department of Veteran Affairs. 

Voluntary Conveyance

The transfer of title from a borrower to the mortgage company to satisfy the mortgage debt and avoid foreclosure; also called a "Deed-in-Lieu of Foreclosure."

W

Workout

An alternative action to foreclosure for the benefit of the lender and borrower. Includes loan modification, short sales and various forms of forbearance. Also called restructure.