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Mortgage Glossary

A-B -- C -- D -- F-H -- I-L -- M -- N-O -- P -- Q-S -- T-Z

If you’re a first-time home buyer, you might be overwhelmed with all the unfamiliar terms associated with loan programs. Going from being a renter to a homeowner is no small feat. Many home buyer programs give you different loan options and mortgage rates.

There are also a myriad of regulatory requirements that banks and lenders have to follow. Whether you’re dealing with issues of affordability or complex legal language, the entire process can be overwhelming.

As you go down the path of buying your first home, this mortgage glossary will try to address frequently asked questions (FAQ) you might have about unfamiliar concepts like:

As you navigate these confusing waters, you might also benefit from consulting a real estate attorney. A lawyer can help you understand difficult legal language. They can explain in more detail what these terms mean and how they apply to your situation.

Mortgage Glossary

203(b): Federal Housing Administration’s (FHA's) single-family program. It provides mortgage insurance to lenders to protect against the borrower defaulting. 203(b) is used to finance the purchase of new or existing one to four-family housing. 203(b) insured loans are known for:

  • Requiring a low down payment
  • Flexible qualifying guidelines
  • Limited fees
  • A limit on maximum loan amount

203(k): This FHA mortgage insurance program enables home buyers to finance both the purchase of a house and the cost of its rehabilitation through a single mortgage loan.


"A" Loan or "A" Paper: A credit rating where the FICO score is 680 or above. There have been no late mortgage payments within 12 months. This is the best credit rating to have when entering into a new loan.

Abstract of Title: Documents recording the ownership of property throughout time.

Acceleration: The right of the lender to demand payment on the outstanding balance of a loan.

Acceptance: The written approval of the buyer's offer by the seller.

Additional Principal Payment: Money paid to the lender in addition to the established payment amount. It is used directly against the loan principal to shorten the length of the loan.

Adjustable-Rate Mortgage (ARM): A mortgage loan that does not have a fixed interest rate. During the life of the loan, the interest rate will change based on the index rate. Also referred to as adjustable mortgage loans (AMLs) or variable-rate mortgages (VRMs).

Adjustment Date: The actual date that the interest rate is changed for an ARM.

Adjustment Index: The published market index used to calculate the interest rate of an ARM at the time of origination or adjustment.

Adjustment Interval: The time between the interest rate change and the monthly payment for an ARM. The interval is every one, three, or five years depending on the index.

Affidavit: A signed, sworn statement made by the buyer or seller regarding the truth of the information provided.

Amenity: A feature of the home or property that serves as a benefit to the buyer that is not necessary to its use. It may be natural (location, woods, water) or man-made (swimming pool, garden).

American Society of Home Inspectors: A professional association of independent home inspectors. Phone: (800) 743-2744

Amortization: A payment plan that enables you to reduce your debt through monthly payments. The payments may be principal and interest, or interest-only. The monthly amount is based on the schedule for the entire term or length of the loan.

Annual Mortgagor Statement: Yearly statement to borrowers. It details the remaining principal and amounts paid for taxes and interest.

Annual Percentage Rate (APR): A measure of the cost of credit, expressed as an annual rate. It includes interest as well as other charges. All lenders, by federal law, follow the same rules to ensure the accuracy of the annual percentage rate. It provides consumers with a good basis for comparing the cost of loans, including mortgage plans. APR is a higher rate than the simple interest of the mortgage.

Application: The first step in the official loan approval process. This form is used to record important information about the potential borrower necessary to the underwriting process.

Application Fee: A fee charged by lenders to process a loan application.

Appraisal: A document from a professional that gives an estimate of a property's fair market value. It is based on the sales of comparable homes in the area and the features of a property. An appraisal is often required by a lender before loan approval to ensure that the mortgage loan amount is not more than the value of the property.

Appraisal Fee: Fee charged by an appraiser to estimate the market value of a property.

Appraised Value: An estimation of the current market value of a property.

Appraiser: A qualified individual who uses his or her experience and knowledge to prepare the appraisal estimate.

Appreciation: An increase in property value.

Arbitration: A legal method of resolving a dispute without going to court.

As-is Condition: The purchase or sale of a property in its existing condition without repairs.

Asking Price: A seller's stated price for a property.

Assessed Value: The value that a public official has placed on any asset. It's used to determine taxes.

Assessments: The method of placing value on an asset for taxation purposes.

Assessor: A government official who is responsible for determining the value of a property for taxation.

Assets: Any item with measurable value.

Assumable Mortgage: When a home is sold, the seller may be able to transfer the mortgage to the new buyer. This means the mortgage is assumable. Lenders require a credit review of the new borrower and may charge a fee for the assumption. Some mortgages contain a due-on-sale clause, which means that the mortgage may not be transferable to a new buyer. Instead, the lender may make you pay the entire balance that is due when you sell the home. An assumable mortgage can help you attract buyers if you sell your home.

Assumption Clause: A provision in the terms of a loan that allows the buyer to take legal responsibility for the mortgage from the seller.

Automated Underwriting: Loan processing through a computer-based system that evaluates past credit history to determine if a loan should be approved. This system removes the possibility of personal bias against the buyer.

Average Price: determining the cost of a home by totaling the cost of all houses sold in one area and dividing by the number of homes sold.


"B" Loan or "B" Paper: FICO scores from 620 - 659. Factors include two 30-day late mortgage payments and two to three 30-day late installment loan payments in the last 12 months. No delinquencies over 60 days are allowed. Should be two to four years since a bankruptcy. Also referred to as subprime.

Back End Ratio (debt ratio): A ratio that compares the total of all monthly debt payments to gross monthly income. The monthly debt payments can include:

  • Mortgage, real estate taxes and insurance
  • Car loans
  • Other consumer loans

Back-to-Back Escrow: Arrangements that an owner makes to oversee the sale of one property and the purchase of another at the same time.

Balance Sheet: A financial statement that shows the assets, liabilities, and net worth of an individual or company.

Balloon Loan or Mortgage: A mortgage that typically offers low rates for an initial period, usually either five, seven, or 10 years. After that period elapses, the balance is due or is refinanced by the borrower.

Balloon Payment: The final lump sum payment due at the end of a balloon mortgage.

Bankruptcy: A federal law whereby a person's assets are turned over to a trustee. The assets are used to pay off outstanding debts. This often occurs when someone owes more than they can repay.

Biweekly Payment Mortgage: A mortgage paid twice a month instead of once a month, reducing the amount of interest to be paid on the loan.

Borrower: A person who has been approved to receive a loan and is then obligated to repay it and any additional fees according to the loan terms.

Bridge Loan: A short-term loan paid back relatively fast. Used until a long-term loan can be processed.

Broker: A licensed individual or firm that charges a fee to serve as the mediator between the buyer and seller. Mortgage brokers are individuals in the business of arranging funding. They also deal with negotiating contracts for a client, even though they might not directly loan money. A real estate broker is someone who helps find a house.

Building Code: Based on agreed-upon safety standards within a specific area. It is a regulation that determines the design, construction, and materials used in building.

Budget: A detailed record of all income earned and spent during a specific period.

Buy Down: The seller pays an amount to the lender. The lender provides a lower rate and lower payments many times for an ARM. The seller may increase the sales price to cover the cost of the buy down.


"C" Loan or "C" Paper: FICO scores from 580 to 619. Factors include three to four 30-day late mortgage payments and four to six 30-day late installment loan payments or two to four 60-day late payments. Should be one to two years since bankruptcy. Also referred to as subprime.

Callable Debt: A debt security whose issuer has the right to redeem the security. It may be redeemed at a specified price on or after a specified date but before its stated final maturity.

Cap: A limit, such as one placed on an adjustable-rate mortgage, on how much a monthly payment or interest rate can increase or decrease. It can change either at each adjustment period or during the life of the mortgage. Payment caps do not limit the amount of interest the lender is earning, so they may cause negative amortization.

Capacity: The ability to make mortgage payments on time. It is dependent on assets and the amount of income each month after paying housing costs, debts, and other obligations.

Capital Gain: The profit received. It is based on the difference between the original purchase price and the total sale price.

Capital Improvements: Property improvements that either will enhance the property value or will increase the useful life of the property.

Capital or Cash Reserves: An individual's savings, investments, or assets.

Cash-Out Refinance: When a borrower refinances a mortgage at a higher principal amount to get additional money. This often occurs when the property has appreciated. For example, if a home has a current value of $100,000 and an outstanding mortgage of $60,000, the owner could refinance $80,000 and have an additional $20,000 in cash.

Cash Reserves: A cash amount sometimes required of the buyer to be held in reserve. It is in addition to the down payment and closing costs. The amount is determined by the lender.

Casualty Protection: Property insurance that covers any damage to the home. It also covers damage to personal property. Coverage may extend to either inside or outside the home.

Certificate of Title: A document provided by a qualified source, such as a title company. It shows the property legally belongs to the current owner. Before the title is transferred at closing, it should be clear and free of all liens or other claims.

Chapter 7 Bankruptcy: A bankruptcy that requires assets to be liquidated in exchange for the cancellation of debt.

Chapter 13 Bankruptcy: This type of bankruptcy sets a payment plan between the borrower and the creditor monitored by the court. The homeowner can keep the property but must make payments according to the court's terms within a three- to five-year period.

Charge-Off: The portion of principal and interest due on a loan that is written off when deemed to be uncollectible.

Clear Title: A property title that has no defects. Properties with clear titles are marketable for sale.

Closing: The final step in property purchase where the title is transferred from the seller to the buyer. Closing occurs at a meeting between the buyer, seller, settlement agent, and other agents. At the closing, the seller receives payment for the property. Also known as settlement.

Closing Costs: Fees for final property transfer not included in the price of the property. Typical closing costs include:

  • Charges for the mortgage loan
  • Origination fees, discount points, appraisal fee
  • Survey, title insurance, legal fees
  • Real estate professional fees, prepayment of taxes, and insurance
  • Real estate transfer taxes

A common estimate of closing costs is 2%-6% percent of the purchase price of the home.

Cloud On The Title: Any condition that affects the clear title to real property.

Co-Borrower: An additional person who is responsible for loan repayment and is listed on the title.

Co-Signed Account: An account signed by someone in addition to the primary borrower. It makes both people responsible for the amount borrowed.

Co-signer: A person who signs a credit application with another person. They agree to be equally responsible for the repayment of the loan.

Collateral: Security in the form of money or property pledged for the payment of a loan. For example, on a home loan, the home is the collateral and can be taken away from the borrower if mortgage payments are not made.

Collection Account: An unpaid debt referred to a collection agency to collect on the bad debt. This type of account is reported to the credit bureau and will show on the borrower's credit report.

Commission: An amount of the property sales price that is collected by a real estate professional. It is a fee for negotiating the transaction. Traditionally the home seller pays the commission. The amount of commission is determined by the real estate professional and the seller. It can be as much as 6% of the sales price, though the regulatory climate may be changing to reduce this to a flat fee.

Common Stock: A security that provides voting rights in a corporation. It pays a dividend after preferred stockholders have been paid. This is the most common stock held within a company.

Comparative Market Analysis (COMPS): A property evaluation that determines property value. It does this by comparing similar properties sold within the last year.

Compensating Factors: Factors that show the ability to repay a loan. They are based on less traditional criteria, such as:

  • Employment
  • Rent
  • Utility payment history

Condominium: A form of ownership in which individuals purchase and own a unit of housing in a multi-unit complex. The owner also shares financial responsibility for common areas.

Conforming Loan: A loan that does not exceed Fannie Mae's and Freddie Mac's loan limits. Freddie Mac and Fannie Mae loans are referred to as conforming loans.

Consideration: An item of value given in exchange for a promise or act.

Construction Loan: A short-term loan to finance the cost of building a new home. The lender pays the builder based on milestones accomplished during the building process. For example, once a sub-contractor pours the foundation and it is approved by inspectors, the lender will pay for their service.

Contingency: A clause in a purchase contract outlining conditions that must be fulfilled before the contract is executed. Both buyer and seller may include contingencies in a contract. Both parties must accept the contingency.

Consumer Financial Production Bureau(CFPB): A federal regulatory agency that oversees banks and other financial institutions. It hears complaints and offers assistance to consumers with enforcing regulations.

Conventional Loan: A private sector loan, one that is not guaranteed or insured by the U.S. government.

Conversion Clause: A provision in some ARMs allowing it to change to a fixed-rate loan at some point during the term. Conversions are often allowed at the end of the first adjustment period. At the time of the conversion, the new fixed rate is set at the current fixed-rate mortgage rate. There may be additional costs for this clause.

Convertible ARM: An adjustable-rate mortgage. It provides the borrower the ability to convert to a fixed rate within a specified time.

Cooperative (Co-op): Residents purchase stock in a cooperative corporation that owns a structure. Each stockholder is then entitled to live in a specific unit of the structure and is responsible for paying a portion of the loan.

Cost of Funds Index (COFI): An index used to determine interest rate changes for some adjustable-rate mortgages.

Counter Offer: A rejection of all or part of a purchase offer that negotiates different terms to reach an acceptable sales contract.

Covenants: Legally enforceable terms that govern the use of property. These terms are transferred with the property deed. Discriminatory covenants are illegal and unenforceable. Also known as a condition, restriction, deed restriction, or restrictive covenant.

Credit: An agreement that a person will borrow money and repay it to the lender over time.

Credit Bureau: An agency that provides financial information and payment history. It provides such information to lenders about potential borrowers. Also known as a National Credit Repository.

Credit Counseling: Education on how to improve bad credit and how to avoid having more debt than can be repaid. Housing counselors are available for this purpose.

Credit Enhancement: A method used by a lender to reduce default of a loan by requiring collateral, mortgage insurance, or other agreements.

Credit Grantor: The lender that provides a loan or credit.

Credit History: A record of an individual that lists all debts and the payment history for each. The report that is generated from the history is called a credit report. Lenders use this information to gauge a potential borrower's ability to repay a loan.

Credit Loss Ratio: The ratio of credit-related losses to the dollar amount of MBS outstanding and total mortgages owned by the corporation.

Credit Related Expenses: Foreclosed property expenses plus the provision for losses.

Credit Related Losses: Foreclosed property expenses combined with charge-offs.

Credit Repair Companies: Private, for-profit businesses that claim to offer consumers credit and debt repayment difficulties assistance with their credit problems and a bad credit report.

Credit Report: A report generated by the credit bureau that contains the borrower's credit history for the past seven years. Lenders use this information to determine if a loan will be granted.

Credit Risk: A term used to describe the possibility of default on a loan by a borrower.

Credit Score: A score calculated by using a person's credit report to determine the likelihood of a loan being repaid on time. Scores range from about 360 to 840. A lower score means a person is a higher risk, while a higher score means that there is less risk.

Credit Union: A non-profit financial institution federally regulated and owned by the members or people who use their services. Credit unions serve groups that hold a common interest. You have to become a member to use the available services.

Creditor: The lending institution providing a loan or credit.

Creditworthiness: The way a lender measures the ability of a person to qualify and repay a loan.


Debtor: The person or entity that borrows money. The term debtor may be used interchangeably with the term borrower.

Debt-to-Income Ratio: A comparison or ratio of gross income to housing and non-housing expenses. With the FHA, the monthly mortgage payment should be no more than 29% of the monthly gross income before taxes. The mortgage payment combined with non-housing debts should not exceed 41% of income.

Debt Security: A security that represents a loan from an investor to an issuer. The issuer in turn agrees to pay interest in addition to the principal amount borrowed.

Deductible: The amount of cash payment that is made by the insured (the homeowner) to cover a portion of a damage or loss. Sometimes also called "out-of-pocket expenses." For example, out of a total damage claim of $1,000, the homeowner might pay a $250 deductible toward the loss, while the insurance company pays $750 toward the loss. The higher the deductible, the lower the cost of the policy.

Deed: A document that legally transfers ownership of property from one person to another. The deed is recorded on public record with the property description and the owner's signature. Also known as the title.

Deed-in-Lieu: To avoid foreclosure ("in lieu" of foreclosure), a deed is given to the lender to fulfill the obligation to repay the debt. This process does not allow the borrower to remain in the house but helps avoid the costs, time, and effort associated with foreclosure.

Default: The inability to make mortgage payments each month or otherwise comply with mortgage terms. A loan is considered in default when payment has not been paid after 60 to 90 days. Once in default, the lender can exercise legal rights defined in the contract to begin foreclosure proceedings

Delinquency: Failure of a borrower to make mortgage payments on time under a loan agreement. After fifteen days, a late fee may be assessed.

Deposit (Earnest Money): Money put down by a potential buyer to show that they are serious about purchasing the home. It becomes part of the down payment if the offer is accepted. It is returned if the offer is rejected, or forfeited if the buyer pulls out of the deal. During the contingency period, the money may be returned to the buyer if the contingencies are not met to the buyer's satisfaction.

Depreciation: A decrease in the value or price of a property due to changes in market conditions, wear and tear on the property, or other factors.

Derivative: A contract between two or more parties where the security is dependent on the price of another investment.

Disclosures: The release of relevant information about a property that may influence the final sale, especially if it represents defects or problems. Full disclosure refers to the responsibility of the seller to voluntarily provide all known information about the property. Some disclosures may be required by law, such as the federal requirement to warn of potential lead-based paint hazards in pre-1978 housing. A seller found to have knowingly lied about a defect may face legal penalties.

Discount Point: Often paid at closing and calculated to be equivalent to 1% of the total loan amount. Discount points are paid to reduce the interest rate on a loan. In an ARM with an initial rate discount, the lender gives up percentage points in interest. It does this to give you a lower rate and lower payments for part of the mortgage term. The term is usually for one year or less. Depending on the index rate, the ARM rate will probably go up after the period expires.

Down Payment: The portion of a home's purchase price that is paid in cash and is not part of the mortgage loan. This amount varies based on the loan type, but is determined by taking the difference between the sale price and the actual mortgage loan amount. Mortgage insurance is required when a down payment of less than 20% is made.

Document Recording: After closing on a loan, certain documents are filed and made public record. Discharges for the prior mortgage holder are filed first. The deed is then filed with the new owner's and mortgage company's names.

Due on Sale Clause: A provision of a loan allowing the lender to demand full repayment of the loan if the property is sold.

Duration: The number of years it will take to receive the present value of all future payments on a security to include both principal and interest.


FICO Score: FICO is an abbreviation for Fair Isaac Corporation and refers to a person's credit score based on credit history. Lenders and credit card companies use the number to decide if the person is likely to pay their bills. A credit score is evaluated using information from the three major credit bureaus and is usually between 300 and 850.

Fair Credit Reporting Act: Federal act to ensure that credit bureaus are fair and accurate in protecting individual privacy rights enacted in 1971 and revised in October 1997.

Fair Housing Act: A law that prohibits discrimination in all facets of the home-buying process based on race, color, national origin, religion, sex, familial status, or disability.

Fair Market Value: The hypothetical price that a willing buyer and seller will agree upon when they are acting freely, carefully, and with complete knowledge of the situation.

Familial Status: HUD uses this term to describe a single person, a pregnant woman, or a household with children under 18 living with parents or legal custodians who might experience housing discrimination.

Fannie Mae: The Federal National Mortgage Association (FNMA) is a federally chartered enterprise owned by private stockholders. It purchases residential mortgages and converts them into securities for sale to investors. By purchasing mortgages, Fannie Mae supplies funds that lenders may loan to potential homebuyers. Also known as a Government Sponsored Enterprise (GSE).

Federal Housing Administration (FHA): Established in 1934 to advance homeownership opportunities for all Americans. It assists homebuyers by providing mortgage insurance to lenders to cover most losses that may occur when a borrower defaults. This encourages lenders to make FHA loans to borrowers who might not qualify for conventional mortgages.

First Mortgage: The mortgage with first priority if the loan is not paid.

Fixed Expenses: Payments that do not vary from month to month.

Fixed-Rate Mortgage: A mortgage with payments that remain the same throughout the life of the loan. The interest rate and other terms are fixed and do not change.

Fixture: Personal property permanently attached to real estate or real property that becomes a part of the real estate.

Float: The act of allowing an interest rate and discount points to fluctuate with changes in the market.

Flood Insurance: Insurance that protects homeowners against losses from a flood. If a home is located in a flood plain, the lender will require flood insurance before approving a loan.

For Sale by Owner (FSBO): A home that is offered for sale by the owner without the benefit of a real estate professional.

Forbearance: A lender may decide not to take legal action when a borrower is late in making a payment. This can occur when a borrower sets up a plan that both sides agree will bring overdue mortgage payments up to date.

Foreclosure: A legal process in which mortgaged property is sold to pay the loan of the defaulting borrower. Foreclosure laws are based on the statutes of each state.

Freddie Mac: The Federal Home Loan Mortgage Corporation (FHLM) is a federally chartered corporation that purchases residential mortgages, securitizes them, and sells them to investors. This provides lenders with funds for new homebuyers. Also known as a Government Sponsored Enterprise (GSE).

Front End Ratio: A percentage comparing a borrower's total monthly cost to buy a house (mortgage principal and interest, insurance, and real estate taxes) to monthly income before deductions.


GSE: Abbreviation for government-sponsored enterprises. These are a collection of financial services corporations formed by the United States Congress to reduce interest rates for farmers and homeowners. Examples include Fannie Mae and Freddie Mac.

Ginnie Mae: The Government National Mortgage Association (GNMA) is a government-owned corporation overseen by the U.S. Department of Housing and Urban Development. Ginnie Mae pools FHA-insured and VA-guaranteed loans to back securities for private investment. As with Fannie Mae and Freddie Mac, the investment income provides funding that may then be lent to eligible borrowers by lenders.

Global Debt Facility: Designed to allow investors all over the world to purchase debt (loans) of U.S. dollar and foreign currency through a variety of clearing systems.

Good Faith Estimate: An estimate of all closing fees including pre-paid and escrow items as well as lender charges. It must be given to the borrower within three days after submission of a loan application.

Graduated Payment Mortgages: Mortgages that begin with lower monthly payments that get slowly larger over a period of years, eventually reaching a fixed level and remaining there for the life of the loan. Graduated payment loans may be good if you expect your annual income to increase.

Grantee: An individual receiving an interest in real property.

Grantor: An individual conveying an interest in real property.

Gross Income: Money earned before taxes and other deductions. Sometimes it may include income from self-employment, rental property, alimony, child support, public assistance payments, and retirement benefits.

Guaranty Fee: Payment to FannieMae from a lender for the assurance of timely principal and interest payments to MBS (Mortgage Backed Security) security holders.


HECM (Reverse Mortgage): Reverse mortgages are used by senior homeowners age 62 and older to convert the equity in their home into monthly streams of income and/or a line of credit to be repaid when they no longer occupy the home. A lending institution such as a mortgage lender, bank, credit union, or savings and loan association funds the FHA-insured loan, commonly known as HECM.

Hazard Insurance: Protection against a specific loss, such as fire, wind, etc., over a period that is secured by the payment of a regularly scheduled premium.

HELP: The Homebuyer Education Learning Program is an educational program from the FHA that counsels people about the home-buying process. HELP covers topics like budgeting, finding a home, getting a loan, and home maintenance. In most cases, completion of the program may entitle the homebuyer to a reduced initial FHA mortgage insurance premium. It can be from 1.75-2.25% of the home purchase price.

Home Equity Line of Credit: A HELOC is a mortgage loan, often a second mortgage, allowing a borrower to obtain cash against the equity of a home up to a predetermined amount.

Home Equity Loan: A loan backed by the value of a home (real estate). If the borrower defaults or does not pay the loan, the lender has some rights to the property. The borrower can often claim a home equity loan as a tax deduction.

Home Inspection: An examination of the structure and mechanical systems to determine a home's quality, soundness, and safety. It makes the potential homebuyer aware of any repairs that may be needed. The homebuyer often pays inspection fees.

Home Warranty: Offers protection for mechanical systems and attached appliances against unexpected repairs not covered by homeowner's insurance. Coverage extends over a specific period and does not cover the home's structure.

Homeowner's Insurance: An insurance policy, also called hazard insurance, that combines protection against damage to a dwelling and its contents including fire, storms, or other damages with protection against claims of negligence or inappropriate action that result in someone's injury or property damage. Most lenders require homeowners insurance and may escrow the cost. Flood insurance is not included in standard policies and must be purchased separately.

Homeownership Education Classes: Classes that stress the need to develop a strong credit history and offer information about how to:

  • Get a mortgage approved
  • Qualify for a loan
  • Choose an affordable home
  • Go through financing and closing processes
  • Avoid mortgage problems that cause people to lose their homes

Learn more about buying a home from FindLaw's Home Buying Guide.

Homestead Credit: Property tax credit program, offered by some state governments, that provides reductions in property taxes to eligible households.

Housing Counseling Agency: Provides counseling and assistance to individuals on a variety of issues, including loan default, fair housing, and home buying.

HUD: The U.S. Department of Housing and Urban Development was established in 1965. HUD works to create a decent home and suitable living environment for all Americans. It does this by:

  • Addressing housing needs
  • Improving and developing American communities
  • Enforcing fair housing laws

You can find a great deal of information at HUD's website.

HUD-1 Statement: also known as the "settlement sheet," or "closing statement" it itemizes all closing costs. It must be given to the borrower at or before closing. Items that appear on the statement include real estate commissions, loan fees, points, and escrow amounts.

HVAC: Heating, Ventilation, and Air Conditioning. A home's heating and cooling system.


Indemnification: To secure against any loss or damage, compensate, or give security for reimbursement for loss or damage incurred. A homeowner should negotiate for inclusion of an indemnification provision in a contract with a general contractor or a separate indemnity agreement protecting the homeowner from harm, loss, or damage caused by actions or omissions of the general and all sub-contractors.

Index: The measure of interest rate changes that the lender uses to decide how much the interest rate of an ARM will change over time. Index rates are variable and difficult to predict. If a lender bases interest rate adjustments on the average value of an index over time, your interest rate would not be as volatile. You should ask your lender how the index for any ARM you are considering has changed in recent years, and where it is reported.

Inflation: The number of dollars in circulation exceeds the amount of goods and services available for purchase. Inflation results in a decrease in the dollar's value.

Inflation Coverage: Endorsement to a homeowner's policy that automatically adjusts the amount of insurance to compensate for inflationary rises in the home's value. This type of coverage does not adjust for increases in the home's value due to improvements.

Inquiry: A credit report request. Each time a credit application is completed or more credit is requested counts as an inquiry. A large number of inquiries on a credit report can sometimes make a credit score lower.

Interest: A fee charged for the use of borrowing money.

Interest Rate: The amount of interest charged on a monthly loan payment, expressed as a percentage.

Interest Rate Swap: A transaction between two parties where each agrees to exchange payments tied to different interest rates for a specified period, often based on a notional principal amount.

Intermediate-Term Mortgage: A mortgage loan with a contractual maturity from the time of purchase equal to or less than 20 years.

Insurance: Protection against a specific loss, such as fire, wind, etc., over a period that is secured by the payment of a regularly scheduled premium.


Joint Tenancy (with Rights of Survivorship): Two or more owners share equal ownership and rights to the property. If a joint owner dies, their share of the property passes to the other owners without probate. In joint tenancy, ownership of the property cannot be willed to someone who is not a joint owner.

Judgment: A legal decision. When requiring debt repayment, a judgment may include a property lien that secures the creditor's claim by providing a collateral source.

Jumbo Loan: A jumbo or non-conforming loan is a loan that exceeds Fannie Mae's and Freddie Mac's loan limits. Freddie Mac and Fannie Mae loans are referred to as conforming loans.


Late Payment Charges: The penalty the homeowner must pay when a mortgage payment is made after the due date grace period.

Lease: A written agreement between a property owner and a tenant (resident) that stipulates the payment and conditions under which the tenant may occupy a home or apartment and states a specified period.

Lease Purchase (Lease Option): Assists low-to-moderate income homebuyers in purchasing a home by allowing them to lease a home with an option to buy. The rent payment is made up of the monthly rental payment plus an additional amount that is credited to an account for use as a down payment.

Lender: A term referring to a person or company that makes loans for real estate purchases. Sometimes referred to as a loan officer or lender.

Lender Option Commitments: An agreement giving a lender the option to deliver loans or securities by a certain date at agreed-upon terms.

Liabilities: A person's financial obligations such as long-term debt, short-term debt, and other financial obligations to be paid.

Liability Insurance: Insurance coverage that protects against claims alleging a property owner's negligence or action resulted in bodily injury or damage to another person. It is often part of homeowner's insurance policies.

Lien: A legal claim against property that must be satisfied when the property is sold. A claim of money against a property, wherein the value of the property is used as security in repayment of a debt. Examples include a mechanic's lien, which might be for the unpaid cost of building supplies, or a tax lien for unpaid property taxes. A lien is a defect on the title and needs to be settled before transfer of ownership. A lien release is a written report of the settlement of a lien and is recorded in the public record as evidence of payment.

Lien Waiver: A document that releases a consumer (homeowner) from any further obligation for payment of a debt once it has been paid in full. Lien waivers are used by homeowners who hire a contractor to provide work and materials to prevent any subcontractors or suppliers of materials from filing a lien against the homeowner for nonpayment.

Life Cap: A limit on the range interest rates can increase or decrease over the life of an adjustable-rate mortgage (ARM).

Line of Credit: An agreement by a financial institution such as a bank to extend credit up to a certain amount for a certain time to a specified borrower.

Liquid Asset: A cash asset or an asset that is easily converted into cash.

Listing Agreement: A contract between a seller and a real estate professional to market and sell a home. A listing agreement obligates the real estate professional or their agents to seek qualified buyers, report all purchase offers, and help negotiate the highest possible price and most favorable terms for the property seller.

Loan: Money borrowed that is repaid with interest.

Loan Acceleration: An acceleration clause in a loan document is a statement in a mortgage that gives the lender the right to demand payment of the entire outstanding balance if a monthly payment is missed.

Loan Fraud: Purposely giving incorrect information on a loan application to better qualify for a loan. It may result in civil liability or criminal penalties.

Loan Officer: A representative of a lending or mortgage company who is responsible for soliciting homebuyers and the processing of loans. They may also be called lenders, loan representatives, account executives, or loan reps.

Loan Origination Fee: A charge by the lender to cover the administrative costs of making the mortgage. This charge is paid at the closing and varies with the lender and type of loan. A loan origination fee of 1%-2% percent of the mortgage amount is common.

Loan Servicer: The company that collects monthly mortgage payments and disperses property taxes and insurance payments. Loan servicers also monitor nonperforming loans, contact delinquent borrowers, and notify insurers and investors of potential problems. Loan servicers may be the lender or a specialized company that just handles loan servicing under contract with the lender or the investor who owns the loan.

Loan to Value (LTV) Ratio: A percentage calculated by dividing the amount borrowed by the price or appraised value of the home to be purchased. The higher the LTV, the less cash a borrower is required to pay as a down payment.

Lock-In: Since interest rates fluctuate, many lenders offer an interest rate lock-in that guarantees a specific interest rate if the loan is closed within a specific time.

Lock-in Period: The length of time that the lender has guaranteed a specific interest rate to a borrower.

Loss Mitigation: A process to avoid foreclosure. The lender tries to help a borrower who has been unable to make loan payments and is in danger of defaulting on his or her loan.


Mandatory Delivery Commitment: An agreement that a lender will deliver loans or securities by a certain date at agreed-upon terms.

Margin: The number of percentage points the lender adds to the index rate to calculate the ARM interest rate at each adjustment.

Market Value: The amount a willing buyer would pay a willing seller for a home. An appraised value is an estimate of the current fair market value.

Maturity: The date when the principal balance of a loan becomes due and payable.

Median Price: The price of the house that falls in the middle of the total number of homes for sale in that area.

Medium Term Notes: Unsecured general obligations of Fannie Mae with maturities of one day or more and with principal and interest payable in U.S. dollars.

Merged Credit Report: Raw data pulled from two or more of the major credit-reporting firms.

Mitigation: Term used to refer to various changes or improvements made in a home. For instance, it may imply reducing the average level of radon.

Modification: When a lender agrees to modify the terms of a mortgage without refinancing the loan.

Mortgage: A lien on the property that secures the Promise to repay a loan. A security agreement between the lender and the buyer in which the property is collateral for the loan. The mortgage gives the lender the right to collect payment on the loan and to foreclose if the loan obligations are not met.

Mortgage Acceleration Clause: A clause allowing a lender, under certain circumstances, to demand the entire balance of a loan be repaid in a lump sum. The acceleration clause is usually triggered if the home is sold, title to the property is changed, the loan is refinanced, or the borrower defaults on a scheduled payment.

Mortgage-Backed Security (MBS): A Fannie Mae security that represents an undivided interest in a group of mortgages. Principal and interest payments from the individual mortgage loans are grouped and paid out to the MBS holders.

Mortgage Banker: A company that originates loans and resells them to secondary mortgage lenders like Fannie Mae or Freddie Mac.

Mortgage Broker: A firm that originates and processes loans for lenders.

Mortgage Life and Disability Insurance: Term life insurance bought by borrowers to pay off a mortgage in the event of death or make monthly payments in the case of disability. The amount of coverage decreases as the principal balance declines. There are many different terms of coverage determining the amounts of payments and when payments begin and end.

Mortgage Insurance: A policy that protects lenders against some or most of the losses that can occur when a borrower defaults on a mortgage loan. Mortgage insurance is required primarily for borrowers with a down payment of less than 20% of the home's purchase price. Insurance purchased by the buyer to protect the lender in the event of default. Typically purchased for loans with less than 20% down payment. The cost of mortgage insurance is often added to the monthly payment. Mortgage insurance is maintained on conventional loans until the outstanding amount of the loan is less than 80% of the value of the house or for a set period (seven years is common). Mortgage insurance also is available through a government agency, such as the Federal Housing Administration (FHA), or companies (Private Mortgage Insurance or PMI).

Mortgage Insurance Premium (MIP): A monthly payment, often part of the mortgage payment, paid by a borrower for mortgage insurance.

Mortgage Interest Deduction: The interest cost of a mortgage, which is a tax-deductible expense. The interest reduces the taxable income of taxpayers.

Mortgage Modification: A loss mitigation option that allows a borrower to refinance and/or extend the term of the mortgage loan and reduce the monthly payments.

Mortgage Note: A legal document obligating a borrower to repay a loan at a stated interest rate during a specified period. The agreement is secured by a mortgage that is recorded in the public records along with the deed.

Mortgage Qualifying Ratio: Used to calculate the maximum amount of funds that an individual traditionally may be able to afford. A typical mortgage qualifying ratio is 28: 36.

Mortgage Score: A score based on a combination of information about the borrower that is obtained from the loan application, the credit report, and property value information. The score is a comprehensive analysis of the borrower's ability to repay a mortgage loan and manage credit.

Mortgagee: The lender in a mortgage agreement.

Mortgagor: The borrower in a mortgage agreement.

Multifamily Housing: A building with more than four residential rental units.

Multiple Listing Service (MLS): Realtors submit listings and agree to attempt to sell all properties in the MLS. The local MLS has a protocol for updating listings and sharing commissions. The MLS offers the advantage of more timely information, availability, and access to houses and other types of property on the market.


National Credit Repositories: The three companies that maintain national credit-reporting databases. These are Equifax, Experian, and Trans Union, referred to as Credit Bureaus.

Negative Amortization: Amortization means that monthly payments are large enough to pay the interest and reduce the principal on your mortgage. Negative amortization occurs when the monthly payments do not cover all of the interest costs. The interest cost that isn't covered is added to the unpaid principal balance. This means that even after making many payments, you could owe more than you did at the beginning of the loan. Negative amortization can occur when an ARM has a payment cap that results in monthly payments not high enough to cover the interest due.

Net Income: Your take-home pay, the amount of money that you receive in your paycheck after taxes and deductions.

NMLS. The Nationwide Multi-State Licensing System and Registry is an electronic record system for state licensing. It has license information on mortgage lenders and mortgage loan officers.

No Cash Out Refinance: A refinance of an existing loan only for the amount remaining on the mortgage. The borrower does not get any cash against the equity of the home. Also called a "rate and term refinance."

No Cost Loan: There are many variations of a no cost loan. It is a loan that does not charge for items such as title insurance, escrow fees, settlement fees, appraisal, recording fees, or notary fees. It may also offer no points. This lessens the need for upfront cash during the buying process. No cost loans have a higher interest rate.

Nonperforming Asset: An asset such as a mortgage that is not currently accruing interest or which interest is not being paid.

Note: A legal document obligating a borrower to repay a mortgage loan at a stated interest rate over a specified period.

Note Rate: The interest rate stated on a mortgage note.

Notice of Default: A formal written notice to a borrower that there is a default on a loan and that legal action is possible.

Notional Principal Amount: The proposed amount on which interest rate swap payments are based but in general are not paid or received by either party.

Non-Conforming loan: A loan that exceeds Fannie Mae's and Freddie Mac's loan limits. Freddie Mac and Fannie Mae loans are referred to as conforming loans.

Notary Public: A person who serves as a public official and certifies the authenticity of required signatures on a document by signing and stamping the document.


Offer: Indication by a potential buyer of a willingness to purchase a home at a specific price. It is put forth in writing.

Original Principal Balance: The total principal owed on a mortgage before any payments are made.

Origination: The process of preparing, submitting, and evaluating a loan application. It includes a credit check, verification of employment, and a property appraisal.

Origination Fee: The charge for originating a loan. It is calculated in the form of points and paid at closing. One point equals 1% of the loan amount. On a conventional loan, the loan origination fee is the number of points a borrower pays.

Owner Financing: A home purchase where the seller provides all or part of the financing, acting as a lender.

Ownership: Ownership is documented by the deed to a property. The type or form of ownership is important if there is a change in the status of the owners or if the property changes ownership.

Owner's Policy: The insurance policy that protects the buyer from title defects.


PITI: Principal, Interest, Taxes, and Insurance: The four elements of a monthly mortgage payment. Payments of principal and interest go directly towards repaying the loan. The portion that covers taxes and insurance (homeowner's and mortgage, if applicable) goes into an escrow account to cover the fees when they are due.

PITI Reserves: A cash amount that a borrower must have on hand after making a down payment and paying all closing costs for the purchase of a home. The principal, interest, taxes, and insurance (PITI) reserves must equal the amount that the borrower would have to pay for PITI for a predefined number of months.

Partial Claim: A loss mitigation option offered by the FHA that allows a borrower, with help from a lender, to get an interest-free loan from HUD to bring their mortgage payments up to date.

Partial Payment: A payment that is less than the total amount owed on a monthly mortgage payment. In general, lenders do not accept partial payments. The lender may make exceptions during times of difficulty. Contact your lender prior to the due date if a partial payment is needed.

Payment Cap: A limit on how much an ARM's payment may increase, regardless of how much the interest rate increases.

Payment Change Date: The date when a new monthly payment amount takes effect on an adjustable-rate mortgage (ARM) or a graduated-payment mortgage (GPM). The payment change date often occurs in the month following the interest rate adjustment date.

Payment Due Date: Contract language specifying when payments are due on money borrowed. The due date is always indicated and means that the payment must be received on or before the specified date. Grace periods prior to assessing a late fee or additional interest do not eliminate the responsibility of making payments on time.

Perils: For homeowner's insurance, an event that can damage the property. Homeowner's insurance may cover the property for a wide variety of perils caused by accidents, nature, or people.

Personal Property: Any property that is not real property or attached to real property. For example, furniture is not attached. A new light fixture would be considered attached and part of the real property.

Planned Unit Development (PUD): A development that is planned and constructed as one entity. There are common features in the homes or lots governed by covenants attached to the deed. Most planned developments have common land and facilities owned and managed by the owners or neighborhood association. Homeowners are required to participate in the association via a payment of annual dues.

Points: A point is equal to 1% of the principal amount of your mortgage. For example, if you get a mortgage for $95,000, one point means you pay $950 to the lender. Lenders charge points in both fixed-rate and adjustable-rate mortgages to increase the yield on the mortgage and cover loan closing costs. These points are collected at closing and may be paid by the borrower, the home seller, or split between them.

Power of Attorney: A legal document that authorizes another person to act on your behalf. A power of attorney can grant complete authority. It can be limited to certain acts, certain periods, or both.

Pre-Approval: A lender commits to lend to a potential borrower a fixed loan amount based on a completed loan application, credit reports, debt, savings, and review by an underwriter. The commitment remains as long as the borrower still meets the qualification requirements at the time of purchase. This does not guarantee a loan until the property has passed inspection underwriting guidelines.

Pre-foreclosure Sale: A procedure in which the borrower is allowed to sell a property for an amount less than what is owed on it to avoid foreclosure. This sale fully satisfies the borrower's debt.

Pre-Qualify: a lender informally determines the maximum amount an individual is eligible to borrow. This is not a guarantee of a loan.

Predatory Lending: Abusive lending practices that include a mortgage loan to someone who cannot repay. It also pertains to repeated refinancing of a loan charging high interest and fees each time.

Predictive Variables: The variables that are part of the formula comprising elements of a credit-scoring model. These variables are used to predict a borrower's future credit performance.

Preferred Stock: Stock that takes priority over common stock concerning dividends and liquidation rights. Preferred stockholders often have no voting rights.

Prepayment: Any amount paid to reduce the principal balance of a loan before the due date or payment in full of a mortgage. This can occur with the sale of the property, paying off the loan in full, or foreclosure. In each case, full payment occurs before the loan has been fully amortized.

Prepayment Penalty: A provision in some loans that charges a fee to a borrower who pays off a loan before it is due.

Premium: An amount paid on a regular schedule by a policyholder that maintains insurance coverage.

Prepayment Penalty Mortgage (PPM): A type of mortgage requiring the borrower to pay a penalty for prepayment, partial payment of principal, or for repaying the entire loan within a certain period. A partial payment is often defined as an amount exceeding 20% of the original principal balance.

Price Range: The high and low amount a buyer is willing to pay for a home.

Prime Rate: The interest rate that banks charge to preferred customers. Changes in the prime rate are publicized in the business media. Prime rate can be used as the basis for adjustable rate mortgages (ARMs) or home equity lines of credit. The prime rate also affects the current interest rates being offered at a particular point in time on fixed mortgages. Changes in the prime rate do not affect the interest on a fixed mortgage.

Principal: The amount of money borrowed to buy a house or the amount of the loan that has not been paid back to the lender. This does not include the interest paid to borrow that money. The principal balance is the amount owed on a loan at any given time. It is the original loan amount minus the total repayments of the principal made.

Private Mortgage Insurance (PMI): Insurance purchased by a buyer to protect the lender in the event of default. The cost of mortgage insurance is usually added to the monthly payment. Mortgage insurance is generally maintained until over 20% of the outstanding amount of the loan is paid or for a set period (seven years is normal). Mortgage insurance may be available through a government agency, such as the Federal Housing Administration (FHA) or the Veterans Administration (VA), or private mortgage insurance companies (PMI).

Promissory Note: A written promise to repay a specified amount over a specified period.

Property (Fixture and Non-Fixture): In a real estate contract, the property is the land within the legally described boundaries and all permanent structures and fixtures. Ownership of the property confers the legal right to use the property as allowed within both the law and the restrictions of zoning or easements. Fixture property refers to those items permanently attached to the structure, such as carpeting or a ceiling fan, which transfers with the property.

Property Tax: A tax charged by local government and used to fund municipal services such as schools, police, and street maintenance. The amount of property tax is determined locally by a formula, usually based on a percent per $1,000 of the assessed value of the property.

Property Tax Deduction: The U.S. tax code allows homeowners to deduct the amount they have paid in property taxes from their total income.

Public Record Information: Court records of events such as credit, bankruptcy, foreclosure, and tax liens that are a matter of public interest. The presence of public record information on a credit report is regarded negatively by creditors.

Punch List: A list of items that have not been completed at the time of the final walk-through of a newly constructed home.

Purchase Offer: A detailed, written document that makes an offer to purchase a property. It may be amended several times in the process of negotiations. When signed by all parties involved in the sale, the purchase offer becomes a legally binding contract. It is sometimes called the sales contract.


Qualifying Ratios: Guidelines utilized by lenders to determine how much money a homebuyer is qualified to borrow. Lending guidelines typically include a maximum housing expense-to-income ratio and a maximum monthly expense-to-income ratio.

Quitclaim Deed: A deed transferring ownership of a property that doesn't guarantee a clear title.


Radon: A radioactive gas found in some homes that, if occurring in strong enough concentrations, can cause health problems.

Rate Cap: A limit on an ARM on how much the interest rate or mortgage payment may change. Rate caps limit how much the interest rates can rise or fall on the adjustment dates and over the life of the loan.

Rate Lock: A commitment by a lender to a borrower guaranteeing a specific interest rate over a period of time at a set cost.

Real Estate Agent: An individual who is licensed to negotiate and arrange real estate sales. A real estate agent or realtor works for a real estate broker.

Real Estate Mortgage Investment Conduit (REMIC): A security representing an interest in a trust having multiple classes of securities. The securities of each class entitle investors to cash payments. The payments are structured differently from the payments on the underlying mortgages.

Real Estate Property Tax Deduction: A tax-deductible expense reducing a taxpayer's taxable income.

Real Estate Settlement Procedures Act (RESPA): A law protecting consumers from abuses during the residential real estate purchase and loan process. It requires lenders to disclose all settlement costs, practices, and relationships.

Real Property: Land, including all the natural resources and permanent buildings on it.

Realtor: A real estate agent or broker who is a member of the National Association of Realtors and its local and state associations.

Recorder: The public official who keeps records of transactions concerning real property. Sometimes known as a Registrar of Deeds or County Clerk.

Recording: The recording in a registrar's office of an executed legal document. These include deeds, mortgages, satisfaction of a mortgage, or an extension of a mortgage making it a part of the public record.

Recording Fees: Charges for recording a deed with the appropriate government agency.

Refinancing: Paying off one loan by obtaining another. Refinancing is done to secure better loan terms, such as a lower interest rate.

Rehabilitation Mortgage: A mortgage that covers the costs of rehabilitating (repairing or improving) a property. Some rehabilitation mortgages, like the FHA's 203(k), allow a borrower to roll the costs of rehabilitation and home purchase into one mortgage loan.

Reinstatement Period: A phase of the foreclosure process where the homeowner has an opportunity to stop the foreclosure by paying money that is owed to the lender.

Remaining Balance: The amount of principal that has not yet been repaid.

Remaining Term: The original amortization term minus the number of payments that have been applied.

Repayment plan: An agreement between a lender and a delinquent borrower where the borrower agrees to make additional payments to pay down past due amounts while making regularly scheduled payments.

Return On Average Common Equity: Net income available to common stockholders, as a percentage of average common stockholder equity.

Reverse Mortgage (HECM): The reverse mortgage is used by senior homeowners age 62 and older to convert the equity in their home into monthly streams of income and/or a line of credit to be repaid when they no longer occupy the home. A lending institution such as a mortgage lender, bank, credit union, or savings and loan association funds the FHA-insured loan, commonly known as HECM.

Right of First Refusal: A provision in an agreement that requires the owner of a property to allow a certain party to purchase or lease a property before it is offered for sale or lease to others.

Risk-Based Capital: An amount of capital needed to offset losses during 10 years with adverse circumstances.

Risk-Based Pricing: Fee structure used by creditors based on risks of granting credit to a borrower with a poor credit history.

Risk Scoring: An automated way to analyze a credit report versus a manual review. It takes into account late payments, outstanding debt, credit experience, and inquiries in an unbiased manner.


Sale Leaseback: When a seller deeds property to a buyer for payment, and the buyer simultaneously leases the property back to the seller.

Second Mortgage: An additional mortgage on property. In case of a default, the first mortgage must be paid before the second mortgage. Second loans are more risky for the lender and often carry a higher interest rate.

Secondary Mortgage Market: The buying and selling of mortgage loans. Investors purchase residential mortgages originated by lenders, which in turn provides the lenders with capital for additional lending.

Secured Loan: A loan backed by collateral such as property.

Security: The property that will be pledged as collateral for a loan.

Seller Take Back: An agreement where the owner of a property provides second mortgage financing. These are often combined with an assumed mortgage instead of a portion of the seller's equity.

Serious Delinquency: A mortgage that is 90 days or more past due.

Servicer: A business that collects mortgage payments from borrowers and manages the borrower's escrow accounts.

Servicing: The collection of mortgage payments from borrowers and related responsibilities of a loan servicer.

Setback: The distance between a property line and the area where building can take place. Setbacks are used to ensure space between buildings and from roads for many purposes that include drainage and utilities.

Settlement: Another name for closing.

Settlement Statement: A document required by the Real Estate Settlement Procedures Act (RESPA). It is an itemized statement of services and charges relating to the closing of a property transfer. The buyer has the right to examine the settlement statement one day before the closing. This is called the HUD 1 Settlement Statement.

Special Forbearance: A loss mitigation option where the lender arranges a revised repayment plan for the borrower that may include a temporary reduction or suspension of monthly loan payments.

Stockholders' Equity: The sum of proceeds from the issuance of stock and retained earnings less amounts paid to repurchase common shares.

Stripped MBS (SMBS): Securities created by stripping or separating the principal and interest payments from the underlying pool of mortgages into two classes of securities. Each class will be receiving a different proportion of the principal and interest payments.

Sub-Prime Loan: "B" Loan or "B" paper with FICO scores from 620 - 659. "C" Loan or "C" Paper with FICO scores typically from 580 to 619. An industry term used to describe loans with less stringent lending and underwriting terms and conditions. Due to the higher risk, sub-prime loans charge higher interest rates and fees.

Subordinate: To place in a rank of lesser importance or to make one claim secondary to another.

Survey: A property diagram that indicates:

Surveys are conducted by licensed surveyors. They are required by a lender to confirm the property boundaries and features. Lenders want to make sure things such as buildings and easements are correctly described in the legal description of the property.

Sweat Equity: Using labor to build or improve a property as part of the down payment.


Third-Party Origination: A process by which a lender uses another party to completely or partially originate, process, underwrite, close, fund, or package the mortgages it plans to deliver to the secondary mortgage market.

Terms: The period and interest rate agreed upon by the lender and the borrower to repay a loan.

Title: A legal document establishing the right of ownership and is recorded to make it part of the public record. Also known as a Deed.

Title 1: An FHA-insured loan that allows a borrower to make non-luxury improvements like renovations or repairs to their home. Title I loans less than $7,500 don't require a property lien.

Title Company: A company that specializes in examining and insuring titles to real estate.

Title Defect: An outstanding claim on a property that limits the ability to sell the property. Also referred to as a cloud on the title.

Title Insurance: Insurance that protects the lender against any claims that arise from arguments about ownership of the property. Also available for homebuyers. An insurance policy guaranteeing the accuracy of a title search protecting against errors. Most lenders require the buyer to purchase title insurance protecting the lender against loss in the event of a title defect. This charge is included in the closing costs. A policy that protects the buyer from title defects is known as an owner's policy and requires an additional charge.

Title Search: A check of public records to be sure that the seller is the recognized owner of the real estate and that there are no unsettled liens or other claims against the property.

Transfer Agent: A bank or trust company charged with keeping a record of a company's stockholders and canceling and issuing certificates as shares are bought and sold.

Transfer of Ownership: Any means by which ownership of a property changes hands. These include purchase of a property, assumption of mortgage debt, exchange of possession of a property via a land sales contract, or any other land trust device.

Transfer Taxes: State and local taxes charged for the transfer of real estate. Often equal to a percentage of the sales price.

Treasury Index: Used as the basis for adjustable rate mortgages (ARMs). It is based on the results of auctions that the U.S. Treasury holds for its Treasury bills and securities.

Truth-in-Lending: A federal law obligating a lender to give full written disclosure of all fees, terms, and conditions associated with the loan.

Trustee: A person who holds or controls property for the benefit of another.

Two-Step Mortgage: An adjustable-rate mortgage (ARM) that has one interest rate for the first five to seven years of its term and a different interest rate for the remainder of the term.


Underwriting: The process of analyzing a loan application to determine the amount of risk involved in making the loan. It includes a review of the potential borrower's credit history and a judgment of the property value.

Up-Front Charges: The fees charged to homeowners by the lender at the time of closing a mortgage loan. This includes points, broker's fees, insurance, and other charges.


VA (Department of Veterans Affairs): A federal agency that guarantees loans made to veterans. Similar to mortgage insurance, a loan guarantee protects lenders against loss that may result from borrower default.

VA Mortgage: A mortgage guaranteed by the Department of Veterans Affairs (VA).

Variable Expenses: Costs or payments that may vary from month to month, for example, gasoline or food.

Variance: A special exemption of a zoning law to allow the property to be used in a manner different from an existing law.

Vested: A point in time when you may withdraw funds from an investment account, such as a retirement account, without penalty.


Walk-through: The final inspection of a property being sold by the buyer. It is to confirm that any contingencies specified in the purchase agreement are in place. Examples of contingency safeguards include whether:

  • Repairs have been completed
  • Fixture and non-fixture properties are identified
  • Electrical, mechanical, and plumbing systems are in working order

Warranty Deed: A legal document that includes the guarantee the seller is:

  • The true owner of the property
  • Has the right to sell the property
  • Not subject to any claims against the property


Zoning: Local laws established to control the uses of land within a particular area. Zoning laws are used to separate residential land. They’re separated from areas of non-residential use, such as industry or businesses. Zoning ordinances include provisions governing:

  • Type of structure
  • Setbacks
  • Lot size
  • Permissible building use
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