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Mortgage Terminology

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1003
Uniform Residential Loan Application.
A & D LOAN
Acquisition and development loan- a loan for the purchase of raw land for the purpose of development.
Abstract Title
A written history of the ownership of a parcel of land.
Acceleration Clause
Allows the lender to speed up the rate at which your loan comes due or even to demand immediate payment of the entire outstanding balance of the loan should you default on your loan.
Acknowledgment
A declaration by a notary, certifying, by way of personal knowledge or written identification, the identity of the signer.
Adjustable Rate Mortgage (ARM)
Is a mortgage in which the interest rate is adjusted periodically based on a pre-selected index. Also sometimes known as the renegotiable rate mortgage, the variable rate mortgage or the Canadian rollover mortgage. (ARM)
Adjustment Interval
On an adjustable rate mortgage, the time between changes in the interest rate and/or monthly payment, typically one, three or five years, depending on the index.
Affidavit
A sworn statement in writing.
American Land Title Association (ALTA)
An organization of title companies specializing in Real Property Law which has standardized forms and coverage on a national basis. This is standardized coverage.
Amortized / Amortization
Amortization refers to the principal portion of the loan payment and is the loan payment by equal periodic payments calculated to pay off the debt at the end of a fixed period, including accrued interest on the outstanding balance. A fully amortized loan will be completely paid off at the end of the loan term.
Annual Percentage Rate (APR)
An interest rate reflecting the cost of a mortgage as a yearly rate. This rate is likely to be higher than the stated note rate or advertised rate on the mortgage, because it takes into account points and other credit costs. The APR allows homebuyers to compare different types of mortgages based on the annual cost for each loan.
Appraisal
An estimate of the value of real property, made by a qualified professional called an "appraiser." An appraisal will be needed to determine the value of your property.
Assumption
The agreement between buyer and seller where the buyer takes over the payments on an existing mortgage from the seller. This must be approved by the lender and be allowed by the note, which was originally signed by the seller.
Back End
This refers to the debt-to-income ratio calculated using principal, interest, taxes, insurance and consumer credit obligations divided by gross monthly income. It is expressed as a percentage.
Balloon
Usually, a short-term fixed-rate loan which involves small payments for a certain period of time and one large payment for the remaining amount of the principal at a time specified in the contract.
Beneficiary
The entity funding the loan. This is the entity to which the loan is owed.
BK / Bankruptcy
A reorganization or discharge of debts. Could also be referred to as Chapter 7, 11 or 13.
Broker
An individual in the business of assisting in arranging funding or negotiating contracts for a client but who does not loan the money himself. Brokers usually charge a fee or receive a commission for their services.
Buy Down
When the lender and/or the home builder subsidizes the mortgage by lowering the interest rate during the first few years of the loan. While the payments are initially low, they will increase when the subsidy expires.
Cap
The highest rate that an adjustable rate mortgage may reach. It can be expressed as the actual rate or as the amount of change allowed above the start rate. For example, a 7.99 % start rate with a 6% rate change cap would have a maximum interest rate cap of 13.99%.
Cash Out
Any funds disbursed directly to the borrower.
Certificate of Occupancy
A certificate issued by local city government to a builder, stating that the building is in proper condition to be occupied.
Certified Copy
A true copy, attested to be true by the officer holding the original. It should have a stamp and signature stating that it is a true copy.
Clear-to-close
The loan is ready to be closed with no additional conditions.
Closing
The meeting between the buyer, seller and lender or their agents where the property and funds legally change hands. Also called settlement.
Closing Costs
Usually include an origination fee, discount points, appraisal fee, title search and insurance, survey, taxes, deed recording fee, credit report charge and other costs assessed at settlement. The costs of closing usually are about 3 percent to 6 percent of the total mortgage amount. Or any costs being charged to facilitate granting of the credit request.
Commitment
An agreement, often in writing, between a lender and a borrower to loan money at a future date subject to the completion of paperwork or compliance with stated conditions.
Community Property
Property owned in common by a husband and wife, which was not acquired as separate property. A classification of property peculiar to certain states. In community property states, assets may be owned in part by a spouse even if their name does not appear on the title.
Comp. / Comparable
A property with the same basic characteristics as the property you are attempting to find the value of (usually a real estate appraisal.) It should have been sold recently and be as similar as possible.
Condominium
Property owned as a group, with rights to occupy specific units of the structure. An overseeing board often referred to as a Homeowners Association, governs the property.
Construction Loan
A short term interim loan for financing the cost of construction. The lender advances funds to the builder at periodic intervals as the work progresses.
Consumer Credit
Credit owed by the individual, not secured by real estate.
Conventional Loan
A mortgage not insured by FHA or guarantee by the VA or Farmers Home Administration (FMHA).
Conversion Clause
A provision in some ARMS, (Adjustable Rate Mortgage) that allows you to change the ARM to a fixed-rate loan at some point during the loan term.
Credit Ratio
The ratio, expressed as a percentage, which results when a borrower's monthly payment obligation on long-term debts is divided by his or her net effective income (FHA/VA loans) or gross monthly income (Conventional loans).
Credit Report
History of buyers past credit performance.
Credit Score
The score given to an individual to determine the credit worthiness. These scores come from TRW, Equifax and Trans Union.

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