Definitions

Adjustable-Rate Mortgage

(ARM) - A home loan with an interest rate that changes periodically based on market conditions.

Amortization

- The process of gradually paying off a debt through regular installment payments of principal and interest.

Annual Percentage Rate

(APR) - The yearly cost of a loan expressed as a percentage, including interest and certain fees.

Appraisal

- A professional assessment of a property's market value, typically required by lenders before approving a mortgage.

Assumable Mortgage

- A loan that allows a buyer to take over the seller's existing mortgage with the same terms and remaining balance.

Balloon Payment

- A large, one-time payment required at the end of a loan term to pay off the remaining balance.

Biweekly Mortgage

- A payment schedule where mortgage payments are made every two weeks instead of once a month.

Bridge Loan

- A short-term financing option that helps homeowners purchase a new home before selling their current one.

Cash-Out Refinance

- A type of mortgage refinancing that allows homeowners to borrow more than they owe and take the difference in cash.

Closing Costs

- Fees and expenses paid by both the buyer and seller when finalizing a real estate transaction.

Contingency

- A condition in a real estate contract that must be met for the transaction to proceed.

Conventional Loan

- A mortgage that is not guaranteed or insured by a government agency.

Debt-to-Income Ratio

(DTI) - A percentage that compares your total monthly debt payments to your gross monthly income.

Deed in Lieu of Foreclosure

- A process where a homeowner voluntarily transfers property ownership to the lender to avoid foreclosure.

Discount Rate

- The interest rate charged by the Federal Reserve to commercial banks for short-term loans, influencing other interest rates including mortgages.

Down Payment

- An initial upfront payment made when purchasing a home, representing a percentage of the total purchase price.

Earnest Money

- A deposit made by a buyer to demonstrate serious intent to purchase a property.

Equity

- The difference between the current market value of a property and the amount still owed on the mortgage.

Escrow

- A third-party account that holds and disburses funds for property taxes, insurance, and other costs related to a property.

FHA Loan

(FHA) - A government-backed mortgage insured by the Federal Housing Administration, designed for homebuyers with lower credit scores or smaller down payments.

Fixed-Rate Mortgage

(FRM) - A mortgage loan with an interest rate that remains constant for the entire loan term.

Foreclosure

- The legal process by which a lender takes possession of a property after the borrower fails to make mortgage payments.

Good Faith Estimate

(GFE) - A document that lenders must provide to borrowers detailing estimated closing costs and loan terms.

Grace Period

- A set timeframe after the payment due date during which a borrower can make a payment without incurring a late fee or penalty.

Home Equity Line of Credit

(HELOC) - A revolving line of credit secured by the equity in a home, which homeowners can draw from as needed.

Interest-Only Mortgage

- A loan where the borrower pays only interest for a specified period, after which payments increase to include principal.

Jumbo Loan

- A mortgage loan that exceeds the conforming loan limits set by Fannie Mae and Freddie Mac.

Lien

- A legal claim against a property that must be paid when the property is sold.

Loan Modification

- A permanent change to one or more terms of an existing loan to make it more affordable for the borrower.

Loan-to-Value Ratio

(LTV) - A percentage that compares the amount of the loan to the appraised value of the property.

Mortgage Insurance Premium

(MIP) - Insurance required on FHA loans that protects the lender against borrower default.

Origination Fee

- A fee charged by a lender for processing a new loan application.

Piggyback Loan

- A second mortgage or home equity loan taken out simultaneously with a first mortgage to avoid paying private mortgage insurance.

Points

- Fees paid directly to the lender at closing in exchange for a reduced interest rate on the mortgage.

Pre-Approval

- A preliminary evaluation by a lender indicating how much money a potential borrower might be eligible to borrow.

Pre-Payment Penalty

- A fee charged by some lenders when a borrower pays off their mortgage loan earlier than the agreed-upon term.

Principal, Interest, Taxes, and Insurance

(PITI) - The four components that make up a typical mortgage payment.

Private Mortgage Insurance

(PMI) - Insurance that protects the lender if a borrower defaults on a conventional loan with a down payment less than 20%.

Quitclaim Deed

- A legal document that transfers any ownership interest a person may have in a property without any warranties or guarantees.

Real Estate Owned

(REO) - A property owned by a lender, typically a bank, after an unsuccessful foreclosure auction.

Refinancing

(Refi) - The process of replacing an existing mortgage with a new loan, usually to secure better terms.

Reverse Mortgage

(HECM) - A loan that allows homeowners 62 or older to convert part of their home equity into cash without selling the home or making monthly mortgage payments.

Short Sale

- A real estate transaction where a property is sold for less than the amount owed on the mortgage with the lender's approval.

Subordinate Financing

- A loan or lien that ranks behind the primary mortgage in priority of repayment.

Subprime Mortgage

- A type of loan granted to borrowers with lower credit scores who do not qualify for conventional loans.

Title Insurance

- Insurance that protects the lender and/or homeowner against losses arising from defects in the property title.

Truth in Lending Act

(TILA) - A federal law requiring lenders to provide borrowers with clear, accurate information about loan terms and costs.

Underwriting

- The process by which a lender evaluates the risk of lending money to a potential borrower.

USDA Loan

(USDA) - A government-backed mortgage program designed to promote homeownership in rural and some suburban areas.

VA Loan

(VA) - A government-backed mortgage loan available to eligible veterans, active-duty service members, and certain surviving spouses.