The Definitive Mortgage & Real Estate Glossary

A contract provision that gives the lender the right to demand immediate repayment of the entire outstanding principal balance if the borrower defaults on the loan terms (e.g., missed payments).

A loan where the interest rate is fixed for an initial period and then adjusts periodically (usually annually) based on an index plus a margin.

The date when the interest rate changes on an ARM. The time between adjustment dates is the adjustment period.

An arrangement between two or more providers of settlement services (e.g., lender, title company) where there is a business relationship. Requires disclosure under RESPA.

The process of gradually paying off debt over time in equal periodic installments. Early payments are mostly interest, while later payments are mostly principal.

The total cost of a loan over the course of a year, expressed as a percentage. It is always higher than the note interest rate because it includes fees, points, and mortgage insurance.

A professional, impartial estimate of a property's market value by a certified appraiser. Lenders require this to ensure the loan amount is justified by the home's collateral value.

An increase in the value of a property due to changes in market conditions or physical improvements.

The value of a property as determined by a public tax assessor for the purpose of calculating property taxes.

The transfer of a mortgage from the original lender to a third party. Fannie Mae or Freddie Mac often become the assignee.

A loan where the buyer can take over the seller's existing mortgage terms, often subject to lender approval (common with VA and FHA loans).

The legal seizure of property to ensure payment of a debt or to satisfy a judgment.

Computerized systems used by lenders (e.g., Fannie Mae's Desktop Underwriter or Freddie Mac's Loan Prospector) to analyze loan application data and issue a recommendation quickly.

The Debt-to-Income (DTI) ratio, calculated by dividing total monthly debt (including PITI) by gross monthly income.

A single, large payment due at a specified time that retires a debt. Common in short-term mortgages where the final payment is significantly larger.

One one-hundredth of one percent (0.01%). Used in finance to describe percentage change in interest rates or yields. 100 BPS = 1%.

A single mortgage that covers more than one parcel of real estate, often used by developers.

A lump sum payment made to the lender at closing to temporarily or permanently reduce the interest rate and corresponding monthly payments.

Limits placed on how much the interest rate or monthly payment can increase or decrease on an ARM. Includes initial, periodic, and lifetime caps.

A borrower's ability to repay a loan, generally measured by the DTI ratio and liquid assets.

A tax levied on the profit from the sale of an asset, such as real estate. Primary residences have substantial exemptions.

A refinance transaction where the new loan amount exceeds the current debt, with the difference being returned to the borrower in cash at closing.

A document issued by the VA to qualified veterans detailing their entitlement to a VA loan.

The history of all recorded documents and transfers affecting the title to a specific parcel of land, starting from the earliest time to the present.

A five-page document provided to the borrower at least three business days before closing. It details the final loan terms, projected payments, and all costs.

Any outstanding claim, unreleased lien, or encumbrance that may impair the owner's title to the property.

The property pledged as security for the loan. The home itself is the collateral for a mortgage.

A formal written statement by a lender agreeing to make a loan under specific terms and conditions to the borrower.

Recently sold properties with similar characteristics (size, age, location) used by an appraiser to determine the market value of the subject property.

A mortgage that meets the size and guideline limits established by Fannie Mae and Freddie Mac.

A condition that must be met for a real estate contract to become legally binding, such as a satisfactory appraisal, inspection, or loan approval.

A mortgage loan that is not insured or guaranteed by a government agency (like FHA, VA, or USDA).

A formal, legally binding promise in a deed or other legal document regarding the use or non-use of property.

A ratio used by lenders to measure a borrower’s total minimum monthly debt payments (including PITI) divided by their gross monthly income. The back-end ratio.

The legal document that transfers ownership (title) of a property from the seller (grantor) to the buyer (grantee).

A voluntary act where a borrower deeds the property to the lender to satisfy the mortgage debt and avoid the formal foreclosure process.

A security instrument, used instead of a mortgage in many states, which involves three parties: borrower (Trustor), lender (Beneficiary), and a neutral third party (Trustee) who holds title until the debt is paid.

The failure to fulfill the terms of the mortgage agreement, typically by missing payments.

A clause in a mortgage or deed of trust that requires the lender to execute a release of lien once the loan is fully paid off.

A court ruling that allows a lender to seek repayment from the borrower for the difference between the outstanding loan balance and the amount recovered from a foreclosure sale.

A decline in the value of a property due to economic or physical conditions. For investment property, it is also a tax deduction.

Prepaid interest paid by the borrower to the lender at closing in exchange for a permanently lower interest rate (buying down the rate). One point equals 1% of the loan amount.

The portion of the purchase price that the buyer pays upfront in cash, not financed by the mortgage loan.

A provision in the mortgage or deed of trust that allows the lender to demand immediate repayment of the entire loan balance if the property is sold or transferred (prevents assumption).

A sum paid by the buyer to the seller (held in escrow) at the time the purchase offer is accepted to demonstrate good faith and commitment.

A legal right granted to a non-owner to use a portion of the property for a specific purpose (e.g., utility lines, shared driveway).

The right of a government to take private property for public use, provided fair compensation is paid to the owner.

Any claim, lien, or liability that affects or limits the title to a property (e.g., mortgages, unpaid taxes, easements, restrictive covenants).

The financial value of a home that the owner possesses, calculated as the current market value minus the total outstanding mortgage debt.

A separate account held by the loan servicer to collect and pay the borrower's annual property taxes and homeowners insurance premiums (PITI components). Also called an Impound Account.

A neutral third party (often a title company or attorney) who holds documents and funds until all terms of the sale contract are met.

Federal legislation that prohibits discrimination in the sale, rental, or financing of housing based on race, color, national origin, religion, sex, familial status, and disability.

Federal National Mortgage Association. A government-sponsored enterprise (GSE) that buys and sells mortgages in the secondary market.

A government agency that insures residential mortgage loans made by private lenders, known for lower credit score and down payment requirements (3.5%).

The required insurance paid by FHA borrowers to protect the lender against default. MIP is charged both upfront and annually, often for the life of the loan.

A credit score developed by the Fair Isaac Corporation, used by lenders to assess a borrower's credit risk.

The primary lien on a property. It has priority over all other mortgages (e.g., a HELOC or second mortgage) in the event of foreclosure.

A mortgage where the interest rate and the monthly principal and interest payment remain constant for the entire life of the loan.

A temporary agreement with the lender to either reduce or suspend mortgage payments due to financial hardship.

The legal process by which a lender terminates a borrower's ownership rights and takes possession of the collateral property due to loan default.

Federal Home Loan Mortgage Corporation. The sister GSE to Fannie Mae, which also buys and sells mortgages in the secondary market.

The portion of the DTI that only covers housing costs (PITI) divided by the gross monthly income.

A deed where the grantor (seller) guarantees that they hold clear title to a piece of real estate and has a right to sell it. It provides the strongest protection to the buyer.

Money given by an eligible donor (typically a relative or non-profit) to a buyer to be used for the down payment or closing costs. Requires a formal gift letter.

Government National Mortgage Association. Guarantees investors the timely payment of principal and interest on securities backed by FHA, VA, and USDA loans.

The predecessor form to the Loan Estimate (LE), required under RESPA to estimate closing costs.

A type of mortgage where the payments start low and gradually increase over the first few years, designed for borrowers who anticipate a rise in income.

A borrower's total income before taxes and deductions. This is the figure used for DTI calculation.

Insurance that protects the home structure against physical damage (fire, storm, vandalism). Required by all lenders.

A revolving line of credit secured by the equity in the borrower's home, typically set up as a second mortgage.

An organization that establishes rules (covenants) for a community and collects fees (dues) for maintaining common areas.

Legislation passed in 2008 that significantly impacted the regulation of Fannie Mae and Freddie Mac.

Department of Housing and Urban Development. The cabinet-level agency responsible for U.S. national policy and programs dealing with housing needs.

Another term for Escrow Account.

A benchmark interest rate (like SOFR or the Treasury Index) that the rate on an ARM is tied to. The index fluctuates based on market conditions.

A contingency period allowing the buyer to hire a professional to evaluate the physical condition of the property.

Any written legal document that records an act or agreement (e.g., mortgage, note, deed).

The fee charged for borrowing money, calculated as a percentage of the principal balance.

A loan where payments cover only the interest for a set period, meaning the principal balance does not decrease during that time.

A form of co-ownership that gives each party an equal, undivided interest in the property and includes the Right of Survivorship (the deceased owner's share automatically passes to the surviving owners).

A foreclosure process that requires the lender to file a lawsuit and obtain a court order to sell the property (used in states like Florida and New Jersey).

A Non-Conforming Loan that exceeds the loan limits set by Fannie Mae and Freddie Mac for a given area.

A lien (like a second mortgage or HELOC) that is subordinate to the First Mortgage.

A contract where the buyer makes payments directly to the seller, and the seller retains legal title until the full purchase price is paid.

An interest in real estate that allows the holder to possess and use the property for a limited period under a lease, but they do not own the title.

A description of the property sufficient to identify it precisely in legal documents (often using metes and bounds or lot and block numbers).

A credit given by the lender to the borrower to help offset closing costs. The trade-off is usually a slightly higher interest rate.

A legal claim against a property used as security for a debt (e.g., mortgage, property tax lien, judgment lien).

A three-page standardized disclosure required by TRID that summarizes the estimated loan terms, projected payments, and estimated closing costs. Must be provided within three business days of application.

The length of time over which the loan is scheduled to be repaid (e.g., 15-year, 30-year).

The ratio of the loan amount to the property's value (appraised value or sales price, whichever is less). Used to assess risk and set loan terms.

A commitment by the lender to guarantee a specific interest rate and points for a definite period (e.g., 45 days).

The fixed amount (expressed in percentage points) that the lender adds to the Index to determine the fully adjustable interest rate of an ARM.

The most probable price a property will bring in a competitive and open market, determined by an appraiser.

A legal document that creates a lien on a piece of real property as security for the payment of a debt (Note).

A security that represents an ownership interest in a pool of mortgages. These are traded on the secondary market.

An independent company or individual who connects borrowers with lenders but does not fund the loan themselves.

A policy that insures the lender against loss if the borrower defaults. PMI for conventional loans, MIP for FHA loans.

The lender in a mortgage transaction (the one who receives the security interest).

The borrower in a mortgage transaction (the one who gives the security interest).

A situation where the monthly payment is less than the interest due, causing the unpaid interest to be added to the principal balance, increasing the debt.

A measure used in investment real estate: the income generated by a property minus all operating expenses, but before debt service and income taxes.

A loan where the lender does not verify the borrower's income or assets; nearly extinct after the 2008 financial crisis, they are sometimes seen in niche Non-QM investor products.

A loan that does not meet the guidelines for purchase by Fannie Mae or Freddie Mac (e.g., Jumbo, Non-QM).

A foreclosure process that does not require court action. The lender follows state-specific procedures, typically through the power of sale clause in a Deed of Trust.

A loan that does not meet the strict underwriting criteria of a Qualified Mortgage (QM), used for specialized or unique borrower situations.

A legal document that serves as the borrower's promise to repay a debt according to specified terms. Secured by the Mortgage or Deed of Trust.

A formal notice filed by the lender to the borrower, public records, and others, stating that the borrower is in default and foreclosure proceedings have begun.

The substitution of a new contract or obligation for an old one, or the substitution of new parties to an existing obligation.

A fee charged by the lender for processing, underwriting, and closing the loan, usually expressed as a percentage of the loan amount.

An insurance policy that protects the homeowner against financial loss from defects in the property's title. This is separate from the required Lender's Title Policy.

A common abbreviation for the Principal and Interest portion of the monthly mortgage payment.

Interest charged on a daily basis, typically collected at closing to cover the interest accrued from the closing date up to the first day of the following month.

A limit on how much an ARM's interest rate can increase or decrease during any single adjustment period.

The four components of the total monthly housing payment: Principal, Interest, Taxes, and Insurance.

A type of zoning and development that groups housing units on a smaller lot size than usual, leaving common areas for shared use.

A lender’s commitment to grant a loan up to a specific amount, subject to the property meeting lender standards. It is based on a full review of credit and verified financial documents.

An informal estimate of how much a borrower might be able to afford, based on a brief, unverified review of income and debt.

A fee charged to a borrower who pays off a loan before its scheduled maturity date. Rarely permitted on QM loans.

The actual amount of money borrowed, or the remaining balance of the loan, not including interest.

Mortgage insurance required on Conventional Loans when the LTV exceeds 80% (i.e., down payment is less than 20%).

See Note.

The division of expenses (like property taxes, HOA dues) between the buyer and seller, calculated according to the number of days each owned the property within the payment period.

See Planned Unit Development.

A category of loans that meet certain stability standards (e.g., DTI limit of 43%, no interest-only or negative amortization features, term limit of 30 years). Lenders who issue QMs receive legal liability protection.

A lawsuit filed to establish an individual's title to a property, or to remove a Cloud on Title, ensuring no other claims exist.

A deed that transfers whatever interest (if any) the grantor has in the property, without warranting that the title is clear or valid. Used primarily to clear clouds on title.

A refinance transaction whose sole purpose is to change the interest rate and/or the loan term, with no cash out to the borrower (or a minimal amount).

See Lock-in.

Property that is owned by a bank or lender after an unsuccessful foreclosure auction.

A process where a lender re-amortizes the loan based on a new, lower principal balance (usually after a large lump-sum payment), lowering the required monthly payment while keeping the original rate and term.

The transfer of the property title from the Trustee back to the borrower when the loan secured by a Deed of Trust is paid in full.

The official process of entering the executed mortgage, deed, and other documents into the public records of the county where the property is located.

The federal right, under TILA, for a borrower to cancel a refinance (on a principal residence) within three business days after closing, without penalty. Does not apply to purchase mortgages.

Real Estate Settlement Procedures Act. A federal law requiring timely and accurate disclosure of costs and prohibiting illegal kickbacks among settlement service providers.

A loan for homeowners 62 or older that allows them to convert home equity into cash, with repayment deferred until the borrower moves, sells, or passes away.

Debt that can be repeatedly used up to a certain limit and repaid, such as credit cards or HELOCs.

The right of a surviving joint tenant to automatically inherit a deceased co-owner's share of the property.

The market where existing mortgage loans are bought and sold, primarily by Fannie Mae, Freddie Mac, and Ginnie Mae.

A legal document (Mortgage or Deed of Trust) that pledges the property as collateral for the debt.

The company that handles the day-to-day administration of a mortgage, including collecting payments, managing escrow, and handling customer service.

Another term for Closing.

A sale of real estate where the proceeds are less than the amount owed on the mortgage, and the lender agrees to accept the reduced payoff to avoid foreclosure.

The process by which a lien holder agrees to a lower priority than another lien holder (common when refinancing a first mortgage that has an existing HELOC).

Referring to loans made to borrowers with less-than-prime credit scores, carrying higher interest rates and fees.

A professional measurement of a land parcel, showing the exact boundaries, easements, and location of improvements.

A governmental claim against a property for unpaid property taxes, which typically takes precedence over all other liens.

A form of co-ownership where each owner holds a separate, fractional interest. There is no Right of Survivorship; an owner's share passes to their heirs.

Fees collected by the lender on behalf of other parties involved in the loan process, such as appraisal companies, title agents, and attorneys.

Truth in Lending Act. A federal law requiring lenders to disclose the true cost of credit, including the APR and the Right of Rescission.

The legal evidence of property ownership.

Insurance that protects the lender (Lender's Policy) and/or the owner (Owner's Policy) against financial loss resulting from title defects.

A meticulous review of public records to confirm the property's legal ownership and identify any liens or encumbrances.

A TILA disclosure that states the total amount of interest a borrower will pay over the life of the loan, expressed as a percentage of the loan amount.

TILA-RESPA Integrated Disclosure. The rule that requires the use of the Loan Estimate (LE) and the Closing Disclosure (CD) forms.

The neutral third party in a Deed of Trust who holds the legal title to the property until the borrower pays the debt.

The person or entity that evaluates the loan file, assesses the risk of the loan, and ultimately determines whether to approve or deny the application.

The process of assessing the risk of a loan based on the borrower's credit, capacity (income/DTI), and the collateral (appraisal).

Real estate that is free and clear of any liens, mortgages, or other outstanding claims (Encumbrances).

The standardized application form (Fannie Mae Form 1003 / Freddie Mac Form 65) used by virtually all lenders.

A loan guaranteed by the U.S. Department of Agriculture for properties in eligible rural areas, often featuring 100% financing (zero down payment).

The practice of lending money at an illegally high rate of interest.

A mandatory, one-time fee paid by the veteran at closing on a VA Loan to help offset the cost to taxpayers, often financed into the loan.

A mortgage guaranteed by the Department of Veterans Affairs, offering 100% financing and no monthly mortgage insurance for eligible veterans and service members.

The legal way the borrower holds title to the property (e.g., Sole Ownership, Joint Tenancy, Tenancy in Common).

A lien placed on the property by the owner's choice, such as a mortgage.

Local government regulations that dictate how real property can be used in specific areas (e.g., residential, commercial, industrial).