Key Mortgage Terms

A long-form mortgage application created and used by Fannie Mae. Also referred to as a Universal Residential Loan Application (URLA).

An IRS form used to request a person's official tax transcripts. Used by underwriters to verify the authenticity of reported income and employment data.

An adjustable rate mortgage (ARM) is a type of loan for which the interest rate can change, usually in relation to an index interest rate. Your monthly payment will go up or down depending on the loan's introductory period, rate caps, and the index interest rate. With an ARM, the interest rate and monthly payment may start out lower than for a fixed-rate mortgage, but both the interest rate and monthly payment can increase substantially.

Amortization means paying off a loan with regular payments over time, so that the amount you owe decreases with each payment. Most home loans amortize, but some mortgage loans do not fully amortize, meaning that you would still owe money after making all of your payments.

Some home loans allow payments that cover only the amount of interest due, or an amount less than the interest due.If payments are less than the amount of interest due each month, the mortgage balance will grow rather than decrease. This is called negative amortization. Other loan programs that do not amortize fully during the loan may require a large, lump sum "balloon" payment at the end of the loan term. Be sure you know what type of loan you are getting.

It means the amount of money you are borrowing from the lender, minus most of the upfront fees the lender is charging you.

Annual income is a factor in a mortgage loan application and generally refers to your total earned, pre-tax income over a year. Annual income may include income from full-time or part-time work, self-employment, tips, commissions, overtime, bonuses, or other sources. A lender will use information about your annual income and your existing monthly debts to determine if you have the ability to repay the loan.

Whether a lender will rely upon a specific income source or amount when considering you for a loan will often depend upon whether you can reasonably expect the income to continue.

An annual percentage rate (APR) is a broader measure of the cost of borrowing money than the interest rate. The APR reflects the interest rate, any points, mortgage broker fees, and other charges that you pay to get the loan. For that reason, your APR is usually higher than your interest rate.

An appraisal is an independent "estimate of value" conducted by a licensed appraiser. An appraiser uses various data sources to estimate a property's value: city and county records, visual inspections of the interior and exterior, and at least three recent comparable sales in the immediate vicinity. Appraisers have standard, well-defined rules on how to value different types of property, it's not just their opinion.

An Appraisal Management Company (AMC) works with brokers, lenders, and appraisers to facilitate the ordering, tracking, quality control and delivery of appraisal reports. While lenders aren't required to use AMCs, they are required to ensure that appraisers are engaged independently and not unduly influenced. As a result, many lenders use Appraisal Management Companies (AMCs) to fulfill that role.

An appraisal fee is the cost of a home appraisal of a house you plan to buy or already own. Home appraisals provide an independent assessment of the value of the property. In most cases, the selection of the appraiser and any associated costs is up to your lender.

When a property increases in value or the amount that it has increased in value. At a macro level, properties appreciate when demand outstrips supply (a "hot" housing market or sellers' market). At a micro level, when a home is renovated it also appreciates.

An algorithmic, data-driven system for evaluating credit risk. An AUS takes in structured data about an applicant and uses a pre-defined algorithm and statistical analysis to recommend a credit decision. AUSes make processing loans faster and less biased. Within the mortgage industry, most loans will get evaluated by one of three AUSes: Fannie Mae's Desktop Originator (DO), Desktop Underwriter (DU), or Freddie Mac's Loan Prospector (LP).

A loan balance is the amount currently owed on the mortgage.

For mortgages, a balloon loan means that the loan has a larger-than-usual, one-time payment, typically at the end of the loan term. This one-time payment is called a "balloon payment", and it is higher than your other payments, sometimes much higher. If you cannot pay the balloon amount, you might have to refinance, sell your home, or face foreclosure.

For eligible VA loan applicants, basic entitlement guarantees that the VA will pay your lender the lesser of up to $36,000 or 25% of your VA loan amount if you default. For loan amounts over $144,000, bonus entitlement kicks in.

A basis point (also known as a "bip"), is simply one one-hundredth of a percentage point (0.01%). Finance industry professionals tend to use basis points when referring to interest rates to avoid any confusion.

For example, if rates yesterday were 3%, and you were to say that rates increased by 0.5% -- does that mean that they went up by 0.5% in absolute terms (to 3.5%) or that went up by 0.5% in relative terms (to 3.015%)? If you say they increased by 50 basis points, instead, everyone will know you mean 3.5%.

The borrower is the person who applies for and receives the money as part of a mortgage loan. The borrower is then responsible for paying back the loan in a timely fashion according to the terms of their agreement with the lender. In the context of a mortgage, a borrower can also be called a "mortgagor".

A real estate agent that represents the buyer as part of a transaction. Buyers' agents are also sometimes (confusingly) referred to as "selling agents", not to be confused with the "seller's agent" (aka "listing agent"), who is the real estate agent representing the seller of the property.

When you convert some of your home equity to cash as part of a refinancing. This increases your loan balance. An alternative approach to tapping into home equity would be to get a Home Equity Loan of Credit, also known as a HELOC.

Cash to close is the total amount of cash you need to put into escrow to allow the transaction to close. The "cash to close" amount includes the entire down payment and all closing costs, minus any earnest money deposit (if you're buying a home).

It is extremely important that you have this cash readily available in your bank account before getting into contract to avoid any delays in closing. You should also be able to provide proof for where your cash came from. If it came from a gift, you should also be prepared to present a Gift Letter

The Consumer Financial Protection Bureau, a US government agency that is part of the Federal Reserve. The CFPB implements and enforces Federal consumer financial law and ensures that markets for consumer financial products are fair, transparent, and competitive.

The end of the escrow process, which happens at the time a Grant Deed is recorded at the County Recorder's office and is officially of public record.

A Closing Disclosure is a required five-page form that provides final details about the mortgage loan you have selected. It includes the loan terms, your projected monthly payments, and how much you will pay in fees and other costs to get your mortgage.

A Closing Statement is a comprehensive list of fees that a buyer and seller must pay to complete a real estate transaction, including commissions, mortgage insurance, and property tax deposits. It is prepared by the escrow company. The lender uses the Closing Statement to prepare the Closing Disclosure

A co-signer or co-borrower is someone who agrees to take full responsibility to pay back a mortgage with you. This person is obligated to pay any missed payments and even the full amount of the loan if you don't pay. Some mortgage programs distinguish a co-signer as someone who is not on the title and does not have any ownership interest in the mortgaged home. Having a co-signer or co-borrower on your mortgage loan gives your lender additional assurance that the loan will be repaid. But your co-signer or co-borrower's credit record and finances are at risk if you don't repay the loan.

A recent sale of a similar nearby property. A good "comp" should be within one mile of and have the same features (bedrooms, bathrooms, square footage, amenities) as the subject property. Comps are used as part of an Appraisal to estimate a home's value.

A condominium ("condo") is a privately-owned unit within a building that has many such units and shared common areas (lobbies, garages, pools, and elevators).

A homeowner's association (HOA) typically manages these common areas and charges an HOA fee for maintaining them. While the HOA fees are not part of a mortgage payment, they do figure into the Debt-to-Income (DTI) Ratio calculation.

A "conforming" loan is one that adheres to Fannie Mae and Freddie Mac underwriting guidelines. A loan that does not adhere to these guidelines is called a "non-conforming" loan.

The most prominent part of the guidelines are the county-specific loan limits. Each county in the US has a maximum loan amount limit that is loosely-based on the cost of living in that county, adjusted annually for inflation. In 2022, the baseline limit, which applies to the vast majority of counties in the US, is $647,200. The limit tends to be higher in more expensive counties, with a maximum limit of $970,800 in the most expensive counties. If a borrower needs a loan in an amount higher than the conforming limit in the subject property's county, then the borrower will typically need to take out a jumbo loan.

A construction loan is usually a short-term loan that provides funds to cover the cost of building or rehabilitating a home.

A "contingency" is a condition that buyers place in a purchase agreement for a property that lets them cancel the deal without forfeiting their Earnest Money Deposit. There are three standard contingencies: financing, appraisal, and inspection.

A financing contingency makes the deal contingent on the buyer securing a loan for the property. An appraisal contingency makes the deal contingent on the property appraising at a value that is satisfactory to the buyer. An inspection contingency makes the deal contingent on the buyer being able to hire an independent inspector to verify that the property does not have any material undisclosed defects.

With the help of a real estate agent, buyers specify the types and durations of any desired contingencies. Once all contingencies are waived or expired, a buyer can no longer back out of the deal without forfeiting their EMD.

A conventional loan is any mortgage loan that is not insured or guaranteed by the government (such as under Federal Housing Administration, Department of Veterans Affairs, or Department of Agriculture loan programs).

A credit report is a statement provided by an independent credit reporting company that has information about your credit activity and current credit situation such as loan paying history and the status of your credit accounts. Lenders use your credit scores and the information on your credit report to determine whether you qualify for a loan and what interest rate to offer you.

A credit score predicts how likely you are to pay back a loan on time. Companies use a mathematical formula (called a "scoring model") to create your credit score from the information in your credit report. There are different scoring models (with FICO® being a well-known example), so you do not have just one credit score. Your scores depend on your credit history, the type of loan product, and even the day when it was calculated.

A DD-214 is a documented provided by the Department of Defense that certifies a military service member's discharge from active duty. Veterans interested in applying for a VA loan will need a DD-214 to apply for a Certificate of Eligibility.

A borrower's debt-to-income ratio is all of their monthly debt payments divided by their gross monthly income. This number is one way lenders measure a borrower's ability to manage the monthly payments to repay a mortgage.

An official public document that specifies who owns a property.

A document used to transfer legal title of property to a trustee, which holds the property as collateral for a loan. A deed of trust remains in place until the borrower pays the loan back in full. The borrower keeps "equitable title" to the property, but the trustee holds the "legal title" to the property.

Equitable title refers to a person's right to obtain full ownership of a property. Legal title is the actual ownership of the land. The bank holds legal title which gives it the rights to transfer ownership of the property to another party (in the case of default).

When a borrower has stopped paying back their loan, they are said to be "in default".

A reduction in the value of an asset over the course of time, usually due to "wear and tear". Houses can sometimes depreciate if overall market conditions deteriorate. Depreciation is the opposite of appreciation

Delinquent is another term for being late on your payments. Your loan can become delinquent when you miss a payment or don't make a full payment by the due date. After you are delinquent for a certain period of time, a lender or servicer may begin the foreclosure process. The amount of time can vary by state.

The Closing Disclosure has a statement that reads "Your loan has a demand feature," which is checked "yes" or "no." A demand feature permits the lender to require early repayment of the loan.

A down payment is the amount you pay toward the home upfront. You put a percentage of the home's value down and borrow the rest through your mortgage loan. Generally, the larger the down payment you make, the lower the interest rate you will receive and the more likely you are to be approved for a loan.

A down payment assistance program or grant typically refers to assistance provided by an organization such as a government or non-profit agency, to a homebuyer to assist them with the down payment for a home purchase. The funds may be provided as an outright grant or may require repayment, such as when the home is sold.

Points let you make a tradeoff between your upfront costs and your monthly payment. By paying points, you pay more upfront, but you receive a lower interest rate and therefore pay less over time. Points can be a good choice for someone who knows they will keep the loan for a long time.

Points are calculated in relation to the loan amount. Each point equals one percent of the loan amount. For example, one point on a $100,000 loan would be one percent of the loan amount, or $1,000. Two points would be two percent of the loan amount, or $2,000. Points don't have to be round numbers – you can pay 1.375 points ($1,375), 0.5 points ($500) or even 0.125 points ($125). The points are paid at closing and increase your closing costs.

Earnest money is a deposit a buyer pays to show good faith on a signed contract agreement to buy a home. The deposit is held by a seller or third party like a real estate agent or title company. If the home sale is finalized or "closed" the earnest money may be applied to closing costs or the down payment. If the contract is terminated for a permissible reason, the earnest money is returned to the buyer. If the buyer does not perform in good faith, the earnest money may be forfeited and paid out to the seller.

Equity is the amount your property is currently worth minus the amount of any existing mortgage(s) on your property.

An escrow is a contractual arrangement in which an independent third party receives and disburses money or property for the primary transacting parties, with the disbursement dependent on conditions agreed to by the transacting parties.

An escrow account (also known as an "impound account") is set up by the lender to pay certain property-related expenses, like property taxes and homeowner's insurance. A portion of your monthly payment goes into the account. If your mortgage doesn't have an escrow account, you pay the property-related expenses directly.

An escrow company is a licensed, independent third-party that coordinates the flow of funds in a real estate transaction.

The escrow company is responsible for collecting funds, coordinating document signings (including notarization), and finally disbursing funds once all documents have been signed. Oftentimes, a title company will also be licensed as an escrow company and will play both roles in a transaction.

The Federal National Mortgage Association (Fannie Mae) purchases and guarantees mortgages from lending institutions in an effort to increase affordable lending. Fannie Mae is not a federal agency. It is a government-sponsored enterprise under the conservatorship of the Federal Housing Finance Agency (FHFA).

The Federal Housing Administration, a government agency that is part of the Department of Housing and Urban Development (HUD). The FHA insures certain types of mortgage loans.

The FHA requires an FHA funding fee and a monthly insurance premium (MIP) for most of its single-family programs. This upfront mortgage insurance premium is sometimes called an upfront mortgage insurance premium (UMIP or UFMIP).

A loan from a private lender that is regulated and insured by the FHA. FHA loans differ from conventional loans because they allow for lower credit scores and down payments as low as 3.5%. Maximum loan amounts vary by county. Mortgage insurance is required on all FHA loans.

A common misconception is that FHA loans are just for low-income or first-time homebuyers. In fact, they are available to any borrower that qualifies, for both purchases and refinances.

The Federal Housing Finance Agency (FHFA) is an independent federal agency. The FHFA regulates the mortgage industry and sets the standard for government and government-sponsored entities (such as Fannie Mae and Freddie Mac). The FHFA is the agency responsible for setting the annual county loan limits for conventional and FHA loans to be considered conforming loans.

A finance charge is the total amount of interest and loan charges you would pay over the entire life of the mortgage loan.

First-time home buyer. Technically, a first-time homebuyer is a home loan applicant who has not owned a home in the past three years.

A fixed-rate mortgage is a type of home loan for which the interest rate is set when you take out the loan and it will not change during the term of the loan.

Forbearance is when your servicer allows you temporarily to pay your mortgage at a lower rate or temporarily to stop paying your mortgage. Your servicer may grant you forbearance if, for example, you recently lost your job, suffered from a disaster, or from an illness or injury that increased your health care costs. Forbearance is a type of loss mitigation.

Your servicer may require force-placed insurance when you do not have your own insurance policy or if your own policy doesn't meet your servicer's requirements. Force-placed insurance usually protects only the lender, not you. The servicer will charge you for the insurance. Force-placed insurance is usually more expensive than finding an insurance policy yourself.

Foreclosure is when the lender or servicer takes back property after the homeowner fails to make mortgage payments. In some states, the lender has to go to court to foreclose on your property (judicial foreclosure), but other states do not require a court process (non-judicial foreclosure). Generally, borrowers must be notified if the lender or servicer begins foreclosure proceedings. Federal rules may apply to when the foreclosure may start.

The Federal Home Loan Mortgage Corporation (Freddie Mac) is a private corporation founded by Congress. Its mission is to promote stability and affordability in the housing market by purchasing mortgages from banks and other loan makers. The corporation is currently under conservatorship, under the direction of the Federal Housing Finance Agency (FHFA).

For Sale By Owner. When a seller chooses to sell a property themselves without the assistance of a real estate agent.

The process of sending money from a lender to the escrow company prior to closing a real estate transaction.

A gift letter is a signed document detailing a gift (donor name, recipient name, amount of gift, date of gift) with a statement that the money is never needs to be repaid (otherwise it would be considered a loan). If a borrower is using gifted funds as part of their down payment, they will be asked to provide a gift letter.

A deprecated term for a Loan Estimate.

Government recording charges are fees assessed by state and local government agencies for legally recording your deed, mortgage and documents related to your home loan.

See Homeowner's Insurance.

If you're interested in buying a home in a community with shared services, you usually have to pay HOA dues. These fees vary widely. HOA fees are usually paid separately from your monthly mortgage payment. If you do not pay these fees, you can face debt collection efforts by the homeowner's association and even foreclosure.

While the HOA fees are not part of a mortgage payment, they are considered a liability, so they figure into the Debt-to-Income (DTI) Ratio calculation, which means they impact a borrower's ability to qualify for a loan.

A home equity line of credit (HELOC) is a line of credit that allows you to borrow against your home equity. Equity is the amount your property is currently worth, minus the amount of any mortgage on your property. Unlike a home equity loan, HELOCs usually have adjustable interest rates. For most HELOCs, you will receive special checks or a credit card, and you can borrow money for a specified time from when you open your account. This time period is known as the "draw period." During the "draw period," you can borrow money, and you must make minimum payments. When the "draw period" ends, you will no longer be able to borrow money from your line of credit. After the "draw period" ends you may be required to pay off your balance all at once, or you may be allowed to repay over a certain period of time. If you cannot pay back the HELOC, the lender could foreclose on your home.

A home equity loan (sometimes called a HEL) allows you to borrow money using the equity in your home as collateral. Equity is the amount your property is currently worth, minus the amount of any existing mortgage on your property. You receive the money from a home equity loan as a lump sum. A home equity loan usually has a fixed interest rate – one that will not change. If you cannot pay back the HEL, the lender could foreclose on your home.

A home inspection is often part of the home buying process. You typically have the right to hire a home inspector to examine a property and point out its strengths and weaknesses. This is often especially helpful to test a home's structural and mechanical systems including heating, ventilation, air conditioning, and electrical.

A homeowners' association (HOA), is typically formed to manage shared expenses such as landscaping and other maintenance costs for a planned subdivision or other organized community. Condominium HOAs take on more responsibilities including, for example, the maintenance of driveways, shared structures/spaces, roofs, elevators, and recreational facilities.

When applying for a mortgage for a home with an HOA, there are additional documentation requirements to ensure that the HOA is in good standing.

Lenders require a borrower to have home insurance to adequately insure the property. This protects the borrower and lender in the event of damage.

Homeowner's insurance is considered adequate for lending purposes when dwelling coverage supports the lesser of loan amount or the projected replacement cost for the property (based on either the appraiser's determination or the insurance provider's internal evaluation).

Condominium insurance is a little cheaper, as it typically only requires coverage for the internal walls.

A home's purchase price is the amount agreed to by the buyer and seller to be paid to the seller to purchase the home.

The Department of Housing and Urban Development (HUD) is a government agency that helps people get and maintain quality affordable housing. They train and sponsor housing counselors all over the country. A HUD-approved housing counselor can provide you with homebuyer counseling to help you understand and evaluate your options.

See Escrow account.

The index is a benchmark interest rate that reflects general market conditions. The index changes based on the market. Changes in the index, along with your loan's margin, determine the changes to the interest rate for an adjustable-rate mortgage loan.

An initial adjustment cap is typically associated with adjustable rate mortgages (ARMs). This cap determines how much the interest rate can increase the first time it adjusts after the fixed-rate period expires. It's common for this cap to be either two or five percent – meaning that at the first rate change, the new rate can't be more than two (or five) percentage points higher than the initial rate during the fixed-rate period.

An initial escrow deposit is the amount that you will pay at closing to start your escrow account, if required by your lender.

An interest-only mortgage is a loan with scheduled payments that require you to pay only the interest for a specified amount of time.

An interest rate on a mortgage loan is the cost you will pay each year to borrow the money, expressed as a percentage rate. It does not reflect fees or any other charges you may have to pay for the loan. For example, if the mortgage loan is for $100,000 at an interest rate of 4 percent, that consumer has agreed to pay $4,000 each year he or she borrows or owes that full amount.

An interest rate cap, sometimes referred to as an annual cap, is the maximum interest rate increase that can occur annually for an adjustable rate mortgage (ARM) even if the rate would have increased more under market interest rates. For example, if this cap is two percent, the new rate can't be more than two percentage points higher than the previous rate.

A piece of residential property (1-4 units) purchased for investment purposes. An investment property is never occupied by its owner and is purchased solely with the intention of making a profit through rental income and/or appreciation.

Each year the FHFA sets a maximum amount for loans that they will buy from lenders. Anything over this amount is considered a jumbo loan.

Jumbo loans tend to have stricter qualifying criteria and can take slightly longer than conforming loans to close.

A company that provides money for a mortgage to a borrower.

Lender credits work the same way as discount points, but in reverse. You pay a higher interest rate and the lender gives you money to offset your closing costs. When you receive lender credits, you pay less upfront, but you pay more over time with the higher interest rate.

Lender credits can be useful in a situation where a borrower doesn't have quite enough cash to cover closing costs and maintain reserves.

Lender credits are calculated the same way as points, and may appear on lenders' worksheets as negative points. For example, a lender credit of $1,000 on a $100,000 loan might be described as negative one point (because $1,000 is one percent of $100,000).

That $1,000 will appear as a negative number as part of the Lender Credits line item on page 2, Section J of your Loan Estimate or Closing Disclosure. The lender credit offsets your closing costs and lowers the amount you have to pay at closing.

Lender credits can be up to 6% of the purchase price, but can never be more than total closing costs.

Lender's title insurance protects your lender against problems with the title to your property-such as someone with a legal claim against the home. Lender's title insurance only protects the lender against problems with the title. To protect yourself, you may want to purchase owner's title insurance.

A lien is a claim or legal right against an asset, which is used as collateral to satisfy a debt. A mortgage is a type of lien that is collateralized by a specific property.

A lifetime adjustment cap is typically used with adjustable rate mortgages (ARMs). This cap determines how much the interest rate can increase in total, over the life of the loan. For example, if this cap is five percent, that means the rate can never be five percentage points higher than the initial rate. Some lenders may have a different or higher cap.

See Seller's Agent.

A Loan Estimate is a three-page form that borrowers receive after applying for a mortgage that details the costs and conditions of the mortgage.

A borrower cannot sign their loan documents until 7 days after they have been provided with a Loan Estimate.

A mortgage loan modification is a change in your loan terms. The modification is a type of loss mitigation. A modification can reduce your monthly payment to an amount you can afford. Modifications may involve extending the number of years you have to repay the loan, reducing your interest rate, and/or forbearing or reducing your principal balance. If you are offered a loan modification, be sure you know how it will change your monthly payments and the total amount that you will owe in the short-term and the long-term.

The loan-to-value (LTV) ratio is a measure comparing the amount of a mortgage with the appraised value of the property. The higher a borrower's down payment, the lower their LTV ratio. Lenders may use the LTV in deciding whether to lend and to determine if the borrower will require private mortgage insurance.

The margin is the number of percentage points added to the index by the mortgage lender to set your interest rate on an adjustable-rate mortgage (ARM) after the initial rate period ends. The margin is set in your loan agreement and won't change after closing. The margin amount depends on the particular lender and loan.

A mortgage is an agreement between you and a lender that allows you to borrow money to purchase or refinance a home and gives the lender the right to take your property if you fail to repay the money you've borrowed.

This is how much you spend every month. It can include, but is not limited to, recurring obligations like rent or mortgage payment, utilities, car payments, child support payments, and insurance payments, as well as essentials like food. Most of these obligations will have a fixed due date.

Mortgage insurance protects the lender if you fall behind on your payments. Mortgage insurance is typically required if your down payment is less than 20 percent of the property value. Mortgage insurance also is typically required on FHA and USDA loans. However, if you have a conventional loan and your down payment is less than 20 percent, you will most likely have private mortgage insurance (PMI).

FHA loans require that the borrower pays an upfront mortgage insurance premium (UFMIP), which is 1.75% of the loan amount and a monthly mortgage insurance premium (MIP). These premia compensate the FHA for the risk it takes on by lending to borrowers with higher DTIs and lower down payments. The UFMIP is usually financed into the loan amount rather than paid all at once at closing.

The term of your mortgage loan is how long you have to repay the loan. For most types of homes, mortgage terms are typically 15, 20 or 30 years.

A non-qualified mortgage ("non-QM") is a home loan that does not meet the CFPB's requirements for a qualified mortgage ("QM"). Non-QM loans tend to have higher interest rates and less favorable features than QM loans, but allow buyers who can't qualify for a QM loan to be able to buy a home.

A colloquial name for a Purchase Agreement.

An origination fee is what the lender charges the borrower for making the mortgage loan. The origination fee may include processing the application, underwriting and funding the loan, and other administrative services.

Owner's title insurance provides protection to the homeowner if someone sues and says they have a claim against the home from before the homeowner purchased it.

PACE financing provides a way to fund energy efficiency home improvements.

Your payoff amount is how much you will actually have to pay to satisfy the terms of your mortgage loan and completely pay off your debt. Your payoff amount is different from your current balance. Your current balance might not reflect how much you actually have to pay to completely satisfy the loan. Your payoff amount also includes the payment of any interest you owe through the day you intend to pay off your loan. The payoff amount may also include other fees you have incurred and have not yet paid.

The sum of principal, interest, property taxes, and homeowner's insurance.

The sum of PITI and any HOA fees

Private Mortgage Insurance (PMI) is a type of mortgage insurance that benefits your lender. You might be required to pay for PMI if your down payment is less than 20 percent of the property value and you have a conventional loan. You may be able to cancel PMI once you've accumulated a certain amount of equity in your home.

A power of attorney or letter of attorney is a written authorization to represent or act on another person's behalf in private affairs, business, or some other legal matter.

A process in which a prospective borrower's creditworthiness is analyzed to determine whether they may qualify for a loan.

Pre-approvals typically involve an analysis of a borrower's income, debt, assets, and credit score/history using a combination of self-reported and third-party data to determine a maximum loan amount.

Pre-approvals work well for buyers who are in the research or shopping phase of their home buying process since a pre-approval can quickly give the buyer a realistic budget without needing a specific property address.

Once a specific property has been selected, the borrower must submit a full loan application to complete the process of getting a mortgage.

Typically, a pre-approval carries more weight (from a seller's perspective) than a pre-qualification because a pre-approval usually involves a more in-depth analysis than a pre-qualification. That said, there are no hard and fast rules on what constitutes a pre-qualification vs a pre-approval and the process for getting them varies from lender to lender.

Prepaid interest charges are charges due at closing for any daily interest that accrues on your loan between the date you close on your mortgage loan and the period covered by your first monthly mortgage payment.

A prepayment penalty is a fee that some lenders charge if you pay off all or part of your mortgage early. If you have a prepayment penalty, you would have agreed to this when you closed on your home. Not all mortgages have a prepayment penalty.

See Pre-approval.

The principal is the amount of a mortgage loan that you have to pay back. Your monthly payment includes a portion of that principal. When a payment on the principal is made, the borrower owes less, and will pay less interest based upon a lower loan size.

A flat fee for processing a loan (not based on the loan amount). This fee is included in closing costs and will show up as a line item on the Loan Estimate and Closing Disclosure.

Property taxes are taxes charged by local jurisdictions, typically at the county level, based upon the value of the property being taxed. Often, property taxes are collected within the homeowner's monthly mortgage payment, and then paid to the relevant jurisdiction one or more times each year. This is called an escrow account. If the loan does not have an escrow account, then the homeowner will pay the property taxes directly.

When interested in a property, a buyer (typically, their real estate agent) will write up a Residential Purchase Agreement (RPA, also known as an "offer") that details the amount the buyer is willing to pay and any contingencies they have (among other things). The seller can then accept, reject, or counter the offer.

A Qualified mortgage ("QM") is a type of mortgage that has certain features that help make it more likely that you'll be able to afford your loan.

In general, a QM will have a 30-year term, be fully-amortizing, and have a reasonable APR. A QM is not allowed to have interest-only payments, negative amortization, balloon payments, or excessive upfront points/fees.

A way to guarantee the interest rate on a mortgage for a specific period of time (15-60 days). Typically taken out by a borrower while they are going through the final loan application process to give them certainty at closing.

A rate lock removes risk for the borrower, but adds risk for the lender (since interest rates could go up during the lock period), so sometimes rate locks cost a small amount of money to compensate lenders for the risk.

Reserves are funds that are required to be held in your account after closing. Reserves can come from any "liquid asset", such as a checking or savings account, vested stocks, Certificates of Deposit, and retirement accounts. Reserve funds are typically required for jumbo loans and investment property loans. Your Loan Estimate will detail any reserve requirements, if applicable.

The amount of reserves required will be a multiple of PITI. For example, many investors require 6 months of reserves for jumbo loans.

A reverse mortgage allows homeowners age 62 or older to borrow against their home equity. It is called a "reverse" mortgage because, instead of making payments to the lender, you receive money from the lender. The money you receive, and the interest charged on the loan, increases the balance of your loan each month. Most reverse mortgages today are called HECMs, short for Home Equity Conversion Mortgage.

A second mortgage or junior lien is a loan you take out using your house as collateral while you still have another loan secured by your house.

The secondary mortgage market is a marketplace where mortgages can be sold by lenders to investors. Most new mortgages are sold in the secondary market to free up a lender's cash ("providing liquidity") to be able to lend to someone else. By providing liquidity to lenders, the secondary market makes the primary mortgage market more efficient and lowers borrowing costs for homeowners.

The security interest is what lets the lender foreclose if you don't pay back the money you borrowed.

Sellers can pay for some or all of a buyer's closing costs by giving them a "seller credit," which reduces the required cash to close for the buyer.

A seller credit can be up to 6% of the purchase price, but it cannot exceed the actual closing costs. Even if a borrower gets a seller credit, they must always contribute their minimum down payment.

Seller financing is a loan that the seller of your home makes directly to the buyer.

The real estate agent representing the seller in a transaction. Sometimes called the "listing agent".

Your mortgage servicer is the company that sends you your mortgage statements. Your servicer also handles the day-to-day tasks of managing your loan.

Your loan servicer typically processes your loan payments, responds to borrower inquiries, keeps track of principal and interest paid, and manages your escrow account (if you have one). The loan servicer may initiate foreclosure under certain circumstances. Your servicer may or may not be the same company that originally gave you your loan.

A short sale is when a home is sold for less than the outstanding loan balance to avoid foreclosure. This can only be done with permission from the lender.

In the context of liens on a property, a lien that ranks in a lesser position is subordinate to the one in a senior position. For example, a second mortgage is subordinate to a first mortgage.

A loan program for borrowers who do not qualify for a prime loan. Subprime loans tend to have higher interest rates to compensate for the additional risk to the lender.

A survey is a drawing of your property showing the location of the lot, the house and any other structures, as well as any improvements on the property.

A title company handles the process of legally transferring title from the seller to the buyer and recording it with the county. Title companies also provide title insurance and many act as escrow companies.

Title companies routinely issue two types of title insurance policies: an "owner's policy" which covers the homebuyer and a "lender's policy" which covers the mortgage lender. Both are issued at the time of purchase for a one-time premium.

Before issuing a policy, the title company performs an extensive search of relevant public records to determine if anyone other than the current seller has an interest in the property. Any title problems usually can be found and cleared up prior the close of escrow. Once a title policy is issued, if for some reason any claim is ever filed against the property, the title company will pay the legal fees involved in defense of the homeowner's rights, as well as any covered loss arising from a valid claim. That protection exists for as long as the homeowner (or their heirs) own the property.

Title service fees are part of the closing costs you pay when getting a mortgage. When you purchase a home, you receive a document most often called a deed, which shows the seller transferred their legal ownership, or "title," to the home to you. Title service fees are costs associated with issuing a title insurance policy for the lender.

Tradelines are credit accounts listed in your credit report. They include credit cards, car loans, student loans, personal loans, mortgages, and other lines of credit.

TRID is an acronym commonly used to refer to the TILA-RESPA Integrated Disclosure rule.

The Truth in Lending Act (TILA) is intended to ensure that credit terms are disclosed in a meaningful way so consumers can compare credit terms more readily and knowledgeably.

A trained person responsible for underwriting a loan. Underwriters are a separate team from loan officers and appraisers to avoid any bias in the loan evaluation process.

The process of analyzing a borrower's creditworthiness. Underwriting involves evaluating a loan application using the borrower's income, liabilities, assets, and credit history and the property's characteristics to make an objective decision on whether to approve or deny a loan.

A fee associated with underwriting a loan. This type of fee is usually part of closing costs and usually only collected when a loan gets funded. Underwriting fees can vary from $200 to over $1,000 depending on the complexity of the loan application.

The Rural Housing Service, part of the U.S. Department of Agriculture (USDA) offers mortgage programs with no down payment and generally favorable interest rates to rural homebuyers who meet the USDA's income eligibility requirements.

The US Department of Veterans Affairs (VA). The VA runs a unique mortgage program for veterans as well as active servicemembers and members of their families.

A VA loan is a loan program offered by the Department of Veterans Affairs (VA) to help servicemembers, veterans, and eligible surviving spouses buy homes. The VA does not make the loans but sets the rules for who may qualify and the mortgage terms. The VA guarantees a portion of the loan to reduce the risk of loss to the lender. The loans generally are only available for a primary residence.

An IRS tax form that reports an employee's annual earnings. A contractor, by contrast, would receive a 1099. Lenders use a borrower's W-2(s) as a key factor in the pre-approval process.

The yield curve is a graph which depicts how the interest rates (yields) on debt instruments, such as bonds, vary as a function of their years remaining to maturity. In normal circumstances, the longer the maturity, the higher the rate. For example, a 30-year debt instrument typically has a higher interest rate (yield) than a 1-year instrument, all else equal.

A yield spread premium (YSP) is money paid to a lender or broker for giving a borrower lower up front costs in exchange for a higher interest rate on a loan.