The Home Mortgage Help Source
By Ron Kerwood


Weekly Update


The Process




VA Loans

(Rough Credit)




Mortgage Terms

Here are many of the terms you will come across while searching for the right mortgage loan.

Can't find it? Click on   & I'll get right back to you with the answer.

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Acceleration - This refers to the right of the lender (mortgagee) to demand immediate repayment of the balance of the mortgage due to default by the borrower (mortgagor).

Adjustable Rate Mortgage ( ARM ) - This is a mortgage in which the interest rate is adjusted periodically based on a pre-selected index and margin combination. Also known as a Variable Rate Mortgage.
Agreement of Sale - The agreement between the Buyer and Seller that establishes the price and other terms for the purchase of real estate.
Amortization - This is the amount of time used to calculate the payments for loan payoff. (10,15,20,25,30 or 40 years)
Annual Percentage Rate ( A.P.R. ) - The A.P.R. reflects the cost of the mortgage as a yearly rate. This is generally higher than the note rate since it takes into account financing costs such as points, origination fees and other financing charges. Intended to be a method for comparison between one rate and another.
Appraisal - An estimate of the value of a property made by a licensed "Appraiser". This is generally supported by recent sales of similar types of homes within the subjects market area.
Appreciation - An increase in the market value of a home due to changing market conditions and/or home improvements.
Arbitration - A process where disputes are settled by referring them to an impartial third party (arbitrator) chosen by the disputing parties who agree in advance to abide by the decision of the arbitrator. There is a hearing where both parties have an opportunity to be heard, after which the arbitrator issues the decision.
Asbestos - A toxic material that was once used to make insulation and fireproofing material in houses. Because some forms of asbestos have been linked to certain lung diseases, it is no longer used in new homes. However, some older homes may still have asbestos in these materials.
Assets - Everything of value an individual owns.
Assessment - (1) Tax assessment by which the actual real estate taxes are calculated. (Assessment X millage = Taxes) (2) Charge levied by a Homeowner's or Condominium Association to cover the cost of a specific repair or improvement.
Assumption - An agreement between a Seller and a buyer where the Buyer takes over the Seller's existing mortgage. This can save the Buyer the some of the costs of securing a new loan and the assumption must be allowed by the Lender.
"B" Paper Loan - A type of loan used to provide mortgage financing to a borrower who may have tough credit issues.  Also referred to as "Subprime" loans.
Bankruptcy - Legally declared unable to pay your debts as they become due. Bankruptcy can severely impact your ability to borrow money. Talk to a credit counselor as soon as you realize you are having problems paying your bills on time to try to prevent bankruptcy.
Borrower ( Mortgagor ) - Individual (s) who are granted a mortgage loan for the purpose of purchasing or refinancing real estate.
Broker ( Real Estate ) - An individual or firm that acts in the capacity to bring the Buyer and Seller together in a real estate transaction.
Broker ( Mortgage ) - An individual or firm that brings the Borrower and a Lender together for a mortgage loan.
Buy-Down - Agreement between the Lender and the Borrower or other interested party to reduce the mortgage payments in the first few years of a loan.
Callable Debt - A debt security whose issuer has the right to redeem the security at a specified price on or after a specified date, but prior to its stated final maturity.
Caps - (1) Interest rate caps limit the movement of an interest rate on an ARM type of loan either over a specific period and/or over the life of the loan. (2) Payment Caps limit the changes in the payment due to interest rate changes. (Usually tied to Negative Amortization)
Certificate of Eligibility - Indicates the qualified veteran has eligibility to obtain a VA Guaranteed loan. Required documentation to secure a C.O.E. are a Form DD214 with adequate eligibility and a completed Form 1880.
Certificate of Reasonable Value (CRV) - The valuation of a property (appraisal) as determined by a VA approved appraiser/lender.
Charge-Off - The portion of principal and interest due on a loan that is written off when deemed to be uncollectible.
Closing (Closing Date) - When the real estate transaction between buyer and seller is completed. The buyer signs the mortgage documents and the closing costs are paid. Also known as the settlement date.  See also Settlement
Closing Costs - The costs to complete the real estate transaction. These costs are in addition to the price of the home and are paid at closing. They include points, taxes, title insurance, financing costs and items that must be prepaid or escrowed and other costs. Ask a lender or real estate professional for a complete list of closing cost items.  See Good Faith Estimate
Collateral - Property which is pledged as security for a debt. In the case of a mortgage, the collateral would be the land, the house, and other buildings and improvements.
Commitment Letter - A letter from your lender that states the amount of the mortgage, the number of years to repay the mortgage (the term), the interest rate, the loan origination fee, the annual percentage rate and the monthly charges.
Condominium - A unit in a multiunit building. The owner of a condominium unit owns the unit itself and has the right, along with other owners, to use the common areas but does not own the common elements such as the exterior walls, floors and ceilings or the structural systems outside of the unit; these are owned by the condominium association. There are usually condominium association fees for maintenance for building and property upkeep, taxes and insurance on the common areas and reserves for improvements.
Construction Loan - A mortgage loan designed to provide staged payouts to a Builder or Contractor for the purpose of constructing a home. Sometimes combined with the permanent loan (Construction/Perm) to also provide the rest of the funds needed to purchase the home in addition to the Buyer's down payment.
Conventional Loan - A mortgage loan not insured by a governmental agency such as FHA, VA or FmHA. Usually conforming to standards used by FNMA (Fannie Mae) or FHLMC (Freddie Mac).
Counter-Offer - An offer made in return by the person who rejects the previous offer.
Credit - The ability of a person to borrow money, or obtain goods with payments over time, as a consequence of the favorable opinion held by a lender as to the person's financial situation and reliability.
Credit Bureau - A company that gathers information on consumers who use credit and sells that information in the form of a credit report to credit lenders.
Credit Report - A report showing the credit history and status of a potential Borrower.
Credit scoring - A process that uses recorded information about individuals and their loan requests to assess - in a quantifiable, objective, and consistent manner - their future performance regarding debt repayment.  See also Credit Scoring on 'Qualifier' Page.
Creditworthy - Your ability to qualify for credit and repay debts.
Debt-to-Income Ratio - The ratio used by Lenders that includes the proposed housing expense as well as the Borrower's other monthly payment obligations. Also know as "Back" or "Second" Ratio.
Deed - The document used to evidence ownership in real estate.
Deed of Trust - Document used in place of a mortgage, in some states, to secure the payment of a note.
Default - This is the failure to meet obligations relating to a contract such as an Agreement of Sale or a mortgage/deed of trust.
Deferred Interest (Negative Amortization) - This can occur when the payments on a loan are not great enough to satisfy the amount due. The unpaid amounts are added to the loan balance.
Deposit - The amount of money you put down on a house to hold it.
Depreciation - A decline in the value of a house due to changing market conditions, decline of a neighborhood or lack of upkeep on a home.
Delinquency - A mortgage loan on which a payment has not been made by the due date.
Discount Point(s) (Points) - Prepaid interest assessed by the Lender for the purpose of securing a lower interest rate. Each point is equal to (1) one percent of the loan amount.
Down Payment - Monies paid by the Buyer/Borrower to make up the difference between the Sale Price of the property and the mortgage amount.
Due-On-Sale Clause - The right of the Lender to demand payment in full if the property is sold or interest in the property is otherwise transferred.
Earnest Money (Escrow) - Monies given by the prospective Buyer to the Seller or Seller's agent to secure a contract until closing.
Equal Credit Opportunity Act (ECOA) - Federal Law that requires Lenders and other Creditors to make credit fully available to all applicants regardless of race, color, religion, national origin, age, sex, marital status or receipt of income from public assistance programs.
Equity - The value in your home above the total amount of the liens against your home. If you owe $100,000 on your house but it is worth $130,000, you have $30,000 of equity.
Escrow Account - Monies held by a Lender to be used to pay for real estate taxes, property insurance, etc.

FHA (Federal Housing Administration) - A division of the Dept. of Housing & Urban Development (HUD) which insures loans originated under it's guidelines.  These guidelines allow for lower down payments and somewhat relaxed underwriting standards compared to a typical conventional loan.

FHLMC (Freddie Mac, Federal Home Loan Mortgage Corporation) - A quasi-governmental agency that purchases conventional mortgages from insured depositories and HUD approved mortgage bankers.

FmHA (Farmers Home Administration) - A Federal Agency which provides backing for loans in rural areas which do not have a down payment requirement.
FNMA (Fannie Mae, Federal National Mortgage Association) - A quasi-governmental corporation created by Congress that purchases and sells conventional, FHA & VA mortgages.

Fixed Rate Mortgage - A mortgage where the interest rate remains constant throughout the term of the loan.

Forbearance - The lender's postponement of legal action when a borrower is delinquent. It is usually granted when a borrower makes satisfactory arrangements to bring the overdue mortgage payments up to date.  See Repayment Plan

Foreclosure - The legal process where a lender forces the sale of a mortgaged property when a borrower has not met the terms of the mortgage.

Gift Letter - A letter that a family member writes verifying that he/she has given you a certain amount of money as a gift and that you do not have to repay it. You can use this money towards a portion of your down payment through some mortgage products.
Good-Faith Estimate - A written statement itemizing the approximate costs and fees for the mortgage.  See Closing Costs
Gross Monthly Income - The income you earn in a month before taxes and other deductions. Under certain circumstances, it may also include rental income, self-employed income, income from alimony, child support, public assistance payments, and retirement benefits.
Hazard Insurance - Also referred to as 'Homeowner's Insurance'.  This protects the property in the event of loss from fire, weather damage, etc.
Home Inspection - A professional inspection of a home to review the condition of the property. The inspection should include an evaluation of the plumbing, heating and cooling systems, roof, wiring, foundation and pest infestation.
Housing Expense Ratio - The percentage of your gross monthly income that goes toward paying for your housing expenses.
HUD-1 Settlement Statement - A final listing of the costs of the mortgage transaction. It provides the sales price, and down payment, as well as the total settlement costs required from the buyer and seller.
Impounds - see Escrow Items
Index - A published rate against which lenders measure the difference between a current interest rate on an adjustable rate mortgage and that which is earned by other investments such as one, three, five or thirty year treasury securities.  The index is typically used as the fluctuating basis to adjust most A.R.M. mortgages.

Investor - (1) The money source for specific types of mortgage loans.  (2) A buyer who purchases a property to rent to someone else.

Individual Retirement Account (IRA) - A tax-deferred plan that can help build a retirement nest egg.
Inflation - An increase in the general level of prices.
Inquiry - A request for a copy of your credit report. An inquiry occurs every time you fill out a credit application and/or request more credit. Too many inquiries on a credit report can lower your credit score.

Jumbo Loan - A loan with a balance exceeding the limits set from time to time by FNMA and/or FHLMC.  The current limit is $417,000.00 in the 48 contiguous states for a single family dwelling of 01/01/2006.  Therefore a Jumbo Loan would be $417,050.00 or above.

Lien - A claim or charge on property for payment of some debt. With respect to a mortgage, it is the right of the lender to take the title to your property if you do not make the payments due on the mortgage.
Loan Servicing - The tasks a lender performs to protect a mortgage investment, including collecting monthly payments from borrowers and dealing with delinquencies.

Loan to Value Ratio (LTV) - This is the ratio between the loan amount and the sales price and/or appraised value of a property.  

Margin - On an Adjustable Rate Loan (ARM) this is the fixed amount added to a fluctuating index to calculate the new interest rate at the time of adjustment.  This would be subject to any Caps on the loan.

Market Value - This is considered the highest price a buyer would pay as well as the lowest price a seller would accept to sell a property.  Does not always agree with a Appraised Value for a particular property.

Mortgage - A legal document that pledges property to a lender as security for the repayment of the loan. The term also is used to refer to the loan itself.

Mortgage Insurance Premium (MIP) - The charge required by FHA to insure a lender against loss in the event of the borrower's default.

Mortgage Insurance (PMI) - The charge required by a private mortgage insurance company to insure a lender against loss in the event of the borrower's default on a Conventional Mortgage Loan.

Mortgagee - The Lender.

Mortgagor - The Borrower.

Negative Amortization - This can occur when the terms of the mortgage loan allow for a payment level that is not sufficient to amortize (pay off) the loan in the specified term (30 years, 15 years, etc.)

Origination Fee - A fee paid to a lender for processing a loan application, making a home loan, and recording a mortgage against the borrower's real property as security for repayment of the loan. The origination fee is stated in the form of points. One point is 1% of the mortgage amount (e.g., 1,000 on a $100,000 loan).
Owner Financing - A property purchase transaction in which the property seller provides all or part of the financing and takes back a security instrument such as a mortgage.
Partial Payment - A payment that is not sufficient to cover the regular monthly principal and interest payment on a mortgage loan.
Payment Change Date - The date when a new monthly payment amount takes effect on an adjustable rate mortgage (ARM). Generally, the payment change date occurs in the month immediately after the adjustment date and the borrower is notified 30 to 45 days prior as to the new rate and payment.
Payoff - To pay the outstanding balance of a loan in full.
Periodic Payment Cap - A provision of an adjustable-rate mortgage (ARM) that limits how much the interest rate or loan payments may increase or decrease. In upward rate markets, it protects the borrower from large increases in the interest rate or monthly payment at each adjustment period. 
See Caps 
Periodic Rate Cap - A provision of an adjustable-rate mortgage (ARM) that limits how much the interest rate or loan payments may increase or decrease. In upward rate markets, it protects the borrower from large increases in the interest rate or monthly payment at each adjustment period. 
See Caps or Rate Cap
Personal Property - Any property that is not real property or is not permanently fixed to land. 
Piggyback - A combination of two loans. As an example: A total loan is made for 90% of the price of the home. 80% of the purchase price is supplied by a 1st mortgage and 10% by a 2nd mortgage. The 2nd mortgage is a piggyback loan (or second) on the 1st mortgage loan.
PITI - The four potential components of a monthly mortgage payment. Principal refers to the part of the monthly payment that reduces the remaining balance of the mortgage. Interest is the fee charged for borrowing money. Taxes and insurance refer to the amounts that may be paid into an escrow account each month for property taxes and mortgage and hazard insurance.
PITI Reserves - A cash amount that a borrower may be required to have on hand after making a down payment and paying all closing costs for the purchase of a home. TThis is usually stated as a number of months of reserves.
Planned Unit Development - A project or subdivision that includes common property that is owned and maintained by a homeowners' association for the benefit and use of the individual PUD unit owners.  Also known as a PUD.
Point(s) -  A one-time charge by the lender for buying a specific rate.  A point is 1% of the amount of the mortgage (e.g., 1,000 on a $100,000 loan) and each point usually buys the rate down approximately 1/4%.
Power of Attorney (POA) - A legal document authorizing one person to act on another's behalf. A power of attorney can grant complete authority or can be limited to certain acts and/or certain periods of time.
Pre-Approval - A lender's conditional agreement to lend a specific amount on specific terms to a homebuyer. This is usually subject to satisfactory property review and no change in financial condition. 
Pre-Paid Items - Items required by lender to be paid at closing prior to the period they cover such as prorated property taxes, homeowners insurance and pre-paid interest.
Pre-Paid Interest - Mortgage interest that is paid in advance of when it is due.
Predatory Lending - Abusive lending practices that include making a mortgage loan to an individual who does not have the income to repay it or repeatedly refinancing a loan, charging high points and fees each time and "packing" credit insurance on to a loan.
Prepayment - Any amount paid to reduce the principal balance of a loan before the due date. Payment in full on a mortgage that may result from a sale of the property, the owner's decision to pay off the loan in full, or a foreclosure. In each case, prepayment means payment occurs before the loan has been fully amortized.
Prepayment Penalty - A fee that may be charged to a borrower who pays off a loan before it is due. 
Primary Residence - The place someone lives most of the time.
Prime Rate - The interest rate that banks charge on short-term loans to its most creditworthy customers. Changes in the prime rate influence changes in other rates, including mortgage interest rates.
Principal - The amount borrowed or remaining unpaid. The part of the monthly payment that reduces the remaining balance of a mortgage.
Principal Balance - The outstanding balance on a mortgage. The principal balance does not include interest or any other charges. See remaining balance.
Principal, Interest, Taxes, and Insurance - See (PITI)  
Principal Payment - Portion of your monthly payment that reduces the remaining balance of a home loan.
Private Mortgage Insurance (PMI) - Mortgage insurance that is provided by a private mortgage insurance company to protect lenders against loss if a borrower defaults. Most lenders generally require PMI for a loan with a loan-to-value (LTV) percentage in excess of 80 %.
Promissory Note - A written promise to repay a specified amount over a specified period of time.
PUD - See Planned Unit Development 
Purchase Agreement  A written contract signed by the buyer and seller stating the terms and conditions under which a property will be sold.  Also known as an Agreement of Sale.
Purchase Money Mortgage - A loan used in part as payment for a purchase. A loan that is used to buy a home is called a purchase money mortgage.
Purchase Price - The total amount paid for a home.
Radon - A toxic gas found in the soil beneath a house that can contribute to cancer and other illnesses.
Rate Cap - The limit on the amount that the interest rate on an ARM can increase or decrease during any one adjustment period. See Caps
Ratified Sales Contract - A contract that shows both you and the seller of the house have agreed to your offer. This offer may include sales contingencies, such as obtaining a mortgage of a certain type and rate, getting an acceptable inspections, making repairs, closing by a certain date, and the like.
Real Estate Professional - An individual who provides services in buying and selling homes. The real estate professional is paid a percentage of the home sale price by the seller. Unless you have specifically contracted with a buyer's agent, the real estate professional represents the interest of the property seller. Real estate professionals may be able to refer you to local lenders or mortgage brokers, but are generally not involved in the lending process

Refinance - Obtaining a new mortgage with all or some portion of the proceeds used to pay off the original mortgage.

Repayment Plan - An agreement between a lender and a borrower who is delinquent on his or her mortgage payments, in which the borrower agrees to make additional payments to pay down past due amounts while still making regularly scheduled payments.  See Forebearance
Reverse Mortgage - A financial tool which provides seniors with funds from the equity in their homes. Generally, no payments are made on a reverse mortgage until the borrower moves or the property is sold. The final repayment obligation is designed to not exceed the proceeds from the sale of the home.
Secondary Mortgage Market - The market in which residential mortgages or mortgage securities are bought and sold.
Settlement - A meeting between the Buyer, Seller and their Agents where the property and consideration change hands.  See Closing
Title - The right to, and the ownership of, land by the owner. Title is sometimes used to mean the evidence or proof of ownership of land; although another term used for that is "deed."
Title Insurance - Insurance that protects lenders and homeowners against loss of their interest in the property because of legal problems with the title.
Truth-in-Lending Act (TILA) - Federal law which requires disclosure of a truth in lending statement for consumer loans. The statement includes a summary of the total cost of credit such as the APR and other specifics of the loan.
Underwriting - The process of evaluating a loan application to determine the risk involved for the lender. It involves an analysis of the borrower's ability and willingness to repay the debt and the value of the property.
Uniform Residential Loan Application - A standard mortgage application that your lender will ask you to complete. The form request your income, assets, liabilities and a description of the property you plan to buy, among other things.