Ultimate Mortgage & Real Estate Terms Glossary - 500+ Financial Terms

Abstract of Title

A summary of the public records relating to a property's ownership history, including transfers, liens, and legal actions that affect the title.

Acceleration Clause

A mortgage provision that allows the lender to demand immediate payment of the entire loan balance if the borrower defaults or violates loan terms.

Adjustable Rate Mortgage (ARM)

A mortgage loan where the interest rate can change periodically based on market conditions. ARMs typically start with a lower initial rate than fixed-rate mortgages but can fluctuate over time.

Affordability Analysis

A calculation to determine how much house a buyer can afford based on income, debts, down payment, and current interest rates.

Agency Loan

A mortgage loan that meets the underwriting guidelines of Fannie Mae or Freddie Mac, allowing it to be purchased by these government-sponsored enterprises.

Alt-A Loan

A type of mortgage that falls between prime and subprime lending, typically requiring less documentation but still having good credit scores.

Amortization

The process of paying off a loan through regular monthly payments that include both principal and interest. Each payment reduces the loan balance while building equity in your home.

Amortization Schedule

A table showing each loan payment over the life of the loan, breaking down how much goes toward principal and interest for each payment.

Annual Percentage Rate (APR)

The true cost of borrowing money, expressed as a yearly percentage. APR includes not only the interest rate but also fees, closing costs, and other charges associated with the loan.

Appraisal

A professional assessment of a property's market value conducted by a licensed appraiser. Lenders require appraisals to ensure the loan amount doesn't exceed the property's worth.

Appraisal Management Company (AMC)

A third-party company that manages the appraisal process between lenders and appraisers to ensure independence and compliance with regulations.

As-Is Condition

A property sale where the seller makes no repairs or warranties, and the buyer accepts the property in its current condition.

Assets

Items of value that you own, including cash, savings accounts, investments, retirement accounts, and personal property. Lenders review assets to assess your financial stability.

Assignment

The transfer of a mortgage from one party to another, often when loans are sold in the secondary market.

Assumable Mortgage

A mortgage that can be transferred from the seller to the buyer, allowing the buyer to take over the existing loan terms and payments.

Automated Valuation Model (AVM)

A computer program that uses mathematical modeling and databases to estimate property values automatically without human inspection.

Backup Offer

A secondary offer on a property that becomes active if the primary offer falls through.

Balloon Mortgage

A mortgage with lower monthly payments that requires a large lump sum payment (balloon payment) at the end of the loan term.

Bank Statement Loan

A non-QM loan that uses bank statements instead of tax returns to verify income, popular with self-employed borrowers.

Basis Point

A unit of measure used in finance to describe interest rate changes. One basis point equals 0.01% or 1/100th of a percentage point.

Blanket Mortgage

A single mortgage that covers multiple properties, often used by developers or investors with multiple real estate holdings.

Borrower Paid Compensation

Compensation paid directly by the borrower to the mortgage broker or loan officer for their services.

Break-Even Point

The time it takes for monthly savings from a refinance to equal the closing costs paid for the new loan.

Bridge Loan

Short-term financing used to bridge the gap between purchasing a new home and selling your current one. These loans typically have higher rates and shorter terms.

Broker Price Opinion (BPO)

A real estate professional's estimate of a property's value, less formal and typically less expensive than a full appraisal.

Buydown

A financing technique where additional funds are paid upfront to reduce the interest rate and monthly payments. Can be temporary (for a few years) or permanent (for the loan term).

Buyer's Agent

A real estate agent who represents the buyer's interests in a real estate transaction.

Buyer's Market

A market condition where there are more homes for sale than buyers, giving buyers more negotiating power and choice.

Cap Rate

Capitalization rate - the ratio of net operating income to property value, used to evaluate investment property returns.

Cash Flow

The net amount of cash generated by an investment property after all expenses are paid, including mortgage payments, taxes, insurance, and maintenance.

Cash-Out Refinance

A refinancing option where you borrow more than your current mortgage balance and receive the difference in cash. This allows you to tap into your home's equity.

Certificate of Eligibility (COE)

A document from the VA that confirms a veteran's eligibility for a VA loan benefit.

Chain of Title

The chronological sequence of ownership transfers for a property, documented through deeds and other legal documents.

Clear Title

A title free from liens, disputes, or other legal encumbrances that could affect ownership or transfer of the property.

Closing

The final step in a real estate transaction where ownership is transferred, loan documents are signed, and funds are exchanged.

Closing Costs

Fees and expenses paid at the closing of a real estate transaction. These include loan origination fees, title insurance, attorney fees, and various other charges.

Closing Disclosure (CD)

A five-page form that provides final details about your mortgage loan, including loan terms, projected monthly payments, and closing costs.

CLTV (Combined Loan-to-Value)

The ratio of all loans secured by a property to its value, including first mortgages, second mortgages, and HELOCs.

Commercial Real Estate

Property used for business purposes, including office buildings, retail spaces, warehouses, and apartment complexes with 5+ units.

Comparative Market Analysis (CMA)

An analysis of similar properties that have recently sold, are currently for sale, or were listed but didn't sell, used to estimate a property's market value.

Conforming Loan

A mortgage that meets the underwriting guidelines and loan limits set by Fannie Mae and Freddie Mac, allowing it to be purchased by these agencies.

Construction Loan

Short-term financing used to build a home, typically with interest-only payments during construction and conversion to a permanent mortgage upon completion.

Conventional Loan

A mortgage that is not insured or guaranteed by a government agency (FHA, VA, or USDA). These loans typically require higher credit scores and larger down payments.

Cost of Funds Index (COFI)

An index used for some adjustable-rate mortgages, based on the interest rates paid by savings institutions in the western United States.

Credit Report

A detailed report of your credit history, including accounts, payment history, and public records, used by lenders to assess creditworthiness.

Credit Score

A numerical representation of your creditworthiness, ranging from 300 to 850. Higher scores typically qualify for better interest rates and loan terms.

Curtailment

A partial prepayment of principal on a mortgage loan, reducing the outstanding balance and potentially shortening the loan term.

Debt Service Coverage Ratio (DSCR)

A ratio used in commercial and investment property lending that compares property income to debt payments to assess the property's ability to service its debt.

Debt-to-Income Ratio (DTI)

The percentage of your monthly gross income that goes toward paying debts. Lenders use DTI to assess your ability to manage monthly payments and repay borrowed money.

Deed

A legal document that transfers ownership of real property from one party to another.

Deed of Trust

A legal document used in some states instead of a mortgage, where a neutral third party (trustee) holds the title until the loan is paid off.

Default

Failure to make mortgage payments as agreed in the loan contract, which can lead to foreclosure proceedings.

Delinquency

The state of being behind on mortgage payments, typically beginning 30 days after a missed payment.

Discount Points

Prepaid interest paid at closing to reduce the interest rate on a mortgage. One point typically equals 1% of the loan amount.

Down Payment

The upfront cash payment made when purchasing a home, typically expressed as a percentage of the purchase price. Larger down payments usually result in better loan terms.

Due Diligence

The process of investigating and evaluating a property before purchase, including inspections, appraisals, and title searches.

Due-on-Sale Clause

A mortgage provision that requires the full loan balance to be paid when the property is sold or transferred to another party.

Earnest Money

A deposit made by a buyer to show good faith in a real estate transaction, typically held in escrow until closing.

Easement

A legal right to use another person's property for a specific purpose, such as utility access or a shared driveway.

Effective Interest Rate

The actual rate of interest paid on a loan when compounding and fees are included in the calculation.

Encumbrance

A legal claim or liability attached to a property that may affect its transfer or use, such as liens, easements, or restrictions.

Equity

The difference between your home's current market value and the amount you owe on your mortgage. Equity builds over time through mortgage payments and property appreciation.

Escrow

An account held by your lender to collect and pay property taxes, homeowners insurance, and sometimes mortgage insurance on your behalf. Also refers to the closing process.

Escrow Analysis

An annual review of your escrow account to ensure sufficient funds are collected to pay taxes and insurance. May result in payment adjustments.

Exit Strategy

An investor's plan for how they will eventually dispose of an investment property to realize their return.

Fair Market Value

The price a property would sell for between a willing buyer and seller in an arm's length transaction with reasonable knowledge of relevant facts.

Fannie Mae

Federal National Mortgage Association - a government-sponsored enterprise that purchases mortgages from lenders to provide liquidity to the mortgage market.

Federal Housing Administration (FHA)

A government agency that insures mortgages to help borrowers with lower credit scores or smaller down payments qualify for homeownership.

FHA Loan

A mortgage insured by the Federal Housing Administration, designed to help borrowers with lower credit scores or smaller down payments qualify for homeownership.

FICO Score

A specific type of credit score created by the Fair Isaac Corporation, ranging from 300 to 850, commonly used by lenders for credit decisions.

First-Time Homebuyer

Generally defined as someone who has not owned a home in the past three years, often eligible for special loan programs and assistance.

Fixed Rate Mortgage

A mortgage where the interest rate remains constant throughout the entire loan term, providing predictable monthly payments.

Flip

The practice of buying a property, renovating it, and selling it quickly for a profit.

Flood Insurance

Insurance coverage for flood damage, required by lenders for properties in designated flood zones.

Forbearance

A temporary reduction or suspension of mortgage payments granted by the lender during financial hardship. The missed payments typically must be repaid later.

Foreclosure

The legal process by which a lender takes possession of a property when the borrower fails to make mortgage payments as agreed.

Freddie Mac

Federal Home Loan Mortgage Corporation - a government-sponsored enterprise that purchases mortgages from lenders to provide liquidity to the mortgage market.

Gift Funds

Money given to a homebuyer by a family member or other approved source to help with down payment or closing costs, with no expectation of repayment.

Ginnie Mae

Government National Mortgage Association - a government corporation that guarantees securities backed by government-insured mortgages (FHA, VA, USDA).

Good Faith Estimate (GFE)

A document that provides an estimate of settlement charges a borrower is likely to incur in connection with the loan. Now replaced by the Loan Estimate form.

Government Loan

A mortgage that is insured or guaranteed by a government agency, such as FHA, VA, or USDA loans. These often have more flexible qualification requirements.

Government Sponsored Enterprise (GSE)

A financial services corporation created by Congress to enhance credit flow to targeted sectors, primarily Fannie Mae and Freddie Mac in the mortgage market.

Gross Rent Multiplier (GRM)

A quick valuation method for investment properties, calculated by dividing the property price by its gross rental income.

Hard Money Loan

A short-term loan secured by real estate, typically with higher interest rates and shorter terms, often used by investors for quick purchases or renovations.

Hazard Insurance

Insurance that protects against damage to property from fire, storms, and other hazards. Required by mortgage lenders.

Home Equity Line of Credit (HELOC)

A revolving credit line secured by your home's equity. Similar to a credit card, you can borrow up to a certain limit and pay interest only on the amount used.

Home Equity Loan

A fixed-amount loan secured by your home's equity, typically with a fixed interest rate and term. Also known as a second mortgage.

Home Inspection

A thorough examination of a property's condition by a qualified inspector, typically performed before purchase to identify potential problems.

Homeowners Association (HOA)

An organization that manages and maintains common areas and enforces rules in a residential community, funded by dues from property owners.

Homeowners Insurance

Insurance that protects your home and personal belongings against damage or loss from covered perils. Required by most lenders and typically included in your monthly payment.

Housing Ratio

The percentage of gross monthly income spent on housing expenses (PITI), used by lenders to qualify borrowers for loans.

HUD-1 Settlement Statement

A standard form that itemizes all charges imposed on borrowers and sellers in a real estate transaction. Now largely replaced by the Closing Disclosure form.

Hybrid ARM

An adjustable-rate mortgage with an initial fixed-rate period (such as 5, 7, or 10 years) followed by periodic rate adjustments.

Index Rate

A benchmark interest rate used as a reference point for adjustable-rate mortgages, such as LIBOR, Treasury rates, or the prime rate.

Interest-Only Loan

A loan where the borrower only pays interest for a specified period, with the principal balance due later through payments or refinancing.

Interest Rate

The percentage charged by a lender for borrowing money, typically expressed as an annual rate. This determines your monthly interest payment.

Interest Rate Cap

Limits on how much the interest rate can increase on an adjustable rate mortgage, either per adjustment period or over the life of the loan.

Investment Property

Real estate purchased to generate income through rental, resale, or both, rather than as a primary residence.

Judicial Foreclosure

A foreclosure process that goes through the court system, required in some states, providing additional borrower protections.

Jumbo Loan

A mortgage that exceeds the conforming loan limits set by the Federal Housing Finance Agency. These loans typically require higher credit scores and larger down payments.

Know Your Customer (KYC)

Regulatory requirements for lenders to verify the identity and assess the risk profile of borrowers to prevent fraud and money laundering.

Land Contract

A seller-financed agreement where the buyer makes payments to the seller over time, with title transferring after full payment.

Late Payment

A mortgage payment received after the grace period (typically 15 days after the due date), which may incur fees and affect credit scores.

Lender Paid Compensation

Compensation paid by the lender to mortgage brokers or loan officers, typically resulting in a higher interest rate for the borrower.

Letter of Intent

A preliminary agreement outlining the basic terms of a proposed real estate transaction, typically used in commercial deals.

Liability

A debt or financial obligation that you owe, considered by lenders when evaluating your financial capacity to repay a loan.

Lien

A legal claim against a property that must be satisfied before the property can be sold or transferred.

Listing Agent

A real estate agent who represents the seller in a real estate transaction and markets the property for sale.

Loan Estimate

A three-page form that provides important details about your requested mortgage loan, including estimated interest rate, monthly payment, and closing costs.

Loan Modification

A permanent change to one or more terms of your mortgage to make payments more affordable, such as reducing the interest rate or extending the loan term.

Loan Officer

A bank or mortgage company employee who assists borrowers through the loan application process, from initial application to closing.

Loan Origination Fee

A fee charged by the lender for processing your loan application, typically expressed as a percentage of the loan amount or as points.

Loan-to-Value Ratio (LTV)

The percentage of a property's value that is financed with a mortgage. A lower LTV typically results in better loan terms and may eliminate the need for PMI.

Lock-in Period

A specified period during which the lender guarantees a quoted interest rate, protecting borrowers from rate increases during the application process.

Loss Mitigation

Efforts by lenders to help borrowers avoid foreclosure through loan modifications, forbearance, or other workout solutions.

Margin

A fixed percentage added to the index rate to determine the interest rate on an adjustable-rate mortgage.

Market Value

The most probable price a property will sell for in a competitive and open market under normal conditions.

Maturity Date

The date when a loan becomes fully due and payable, marking the end of the loan term.

Mortgage Broker

A licensed professional who acts as an intermediary between borrowers and lenders, helping borrowers find suitable loan products.

Mortgage Insurance

Insurance that protects the lender if you default on your loan. Required for conventional loans with less than 20% down payment and for most government loans.

Mortgage Insurance Premium (MIP)

The insurance premium paid on FHA loans to protect the lender against loss if the borrower defaults. Includes both upfront and annual premiums.

Mortgage Note

A legal document that evidences the debt and promises to repay the mortgage loan according to specified terms.

Multiple Listing Service (MLS)

A database used by real estate professionals to share information about properties for sale, facilitating cooperation between agents.

Negative Amortization

A situation where monthly payments are insufficient to cover the interest due, causing the unpaid interest to be added to the loan balance.

Net Operating Income (NOI)

The income generated by an investment property after operating expenses but before debt service and capital expenditures.

No-Cost Loan

A mortgage where the lender pays closing costs in exchange for a higher interest rate, or the costs are financed into the loan amount.

Non-Conforming Loan

A mortgage that doesn't meet the underwriting guidelines of Fannie Mae and Freddie Mac, often due to loan amount, credit, or documentation requirements.

Non-Judicial Foreclosure

A foreclosure process that doesn't require court involvement, typically faster and less expensive than judicial foreclosure.

Non-QM Loan

Non-Qualified Mortgage - a loan that doesn't meet the Consumer Financial Protection Bureau's qualified mortgage standards, often with alternative documentation or terms.

Note Rate

The interest rate specified in the mortgage note, which may differ from the APR due to additional costs and fees.

Occupancy Rate

The percentage of rental units that are occupied and generating income, used to evaluate investment property performance.

Origination

The process of creating a mortgage loan, from application through funding. Includes application review, underwriting, and closing.

Owner Financing

A real estate transaction where the seller acts as the lender, allowing the buyer to make payments directly to the seller instead of obtaining a traditional mortgage.

Payment Option ARM

An adjustable-rate mortgage that allows borrowers to choose from multiple payment options each month, including minimum payments that may cause negative amortization.

PITI

An acronym for Principal, Interest, Taxes, and Insurance - the four components of a typical monthly mortgage payment.

Points

Prepaid interest charged by the lender at closing. One point equals 1% of the loan amount and typically reduces the interest rate by 0.25%.

Portfolio Loan

A mortgage that a lender keeps in its own portfolio rather than selling to the secondary market, allowing for more flexible underwriting.

Power of Sale

A clause in a deed of trust that allows the trustee to sell the property without court proceedings if the borrower defaults.

Pre-approval

A lender's written commitment to provide a mortgage loan up to a specified amount, based on a thorough analysis of your financial situation.

Prepayment Penalty

A fee charged by some lenders if you pay off your mortgage early or make payments above a certain amount.

Principal

The original amount of money borrowed, or the remaining balance on your loan. Each mortgage payment includes principal, which reduces the loan balance.

Private Mortgage Insurance (PMI)

Insurance required on conventional loans with less than 20% down payment. PMI protects the lender if you default and can be removed once you reach 20% equity.

Property Management

The operation and oversight of real estate, including tenant relations, maintenance, rent collection, and property marketing.

Property Taxes

Annual taxes assessed by local government based on your property's value. Usually collected monthly through your escrow account and paid annually by your lender.

Purchase Agreement

A legal contract between buyer and seller that outlines the terms and conditions of a real estate sale.

Qualified Mortgage (QM)

A category of loans defined by the Consumer Financial Protection Bureau with certain features that reduce risk to borrowers, such as stable payment terms.

Qualifying Ratio

Guidelines used by lenders to determine how much you can borrow, typically based on debt-to-income ratios and payment-to-income ratios.

Quitclaim Deed

A deed that transfers whatever interest the grantor has in a property without warranties or guarantees about the quality of the title.

Rate Lock

A commitment from a lender to honor a specific interest rate for a set period, typically 30-60 days, protecting you from rate increases during processing.

Real Estate Owned (REO)

Property owned by a lender after an unsuccessful foreclosure auction, typically sold at a discount to recover losses.

Refinancing

The process of replacing your existing mortgage with a new loan, typically to obtain a better interest rate, change loan terms, or access home equity.

Rental Income

Money received from tenants for the use of investment property, used to qualify borrowers and evaluate property cash flow.

Reverse Mortgage

A loan available to homeowners 62 and older that allows them to convert home equity into cash without selling the home or making monthly payments.

Right of Rescission

The borrower's right to cancel certain types of loans within three business days after signing, particularly for refinances and home equity loans.

Second Mortgage

An additional loan secured by your property, subordinate to the first mortgage. Can be a fixed loan amount or a line of credit.

Secondary Market

The market where mortgages are bought and sold after origination, providing liquidity to lenders and enabling more lending.

Seller Financing

A real estate transaction where the seller provides financing to the buyer instead of the buyer obtaining a traditional mortgage from a bank.

Servicer

The company that collects your mortgage payments, maintains payment records, and handles customer service. May be different from your original lender.

Settlement

The closing meeting where ownership of the property is transferred and loan documents are signed. Also called closing.

Short Sale

A real estate transaction where the property is sold for less than the amount owed on the mortgage, with lender approval required.

Subprime Loan

A loan made to borrowers with poor credit histories or high debt-to-income ratios, typically carrying higher interest rates.

Subordination

An agreement that places one debt behind another in priority for collecting repayment from a debtor, commonly used with second mortgages and HELOCs.

Tax Lien

A legal claim placed on property by a government entity for unpaid taxes, which must be resolved before the property can be sold.

Title Insurance

Insurance that protects the lender and/or homeowner against loss due to disputes over property ownership or liens against the property.

Title Search

An examination of public records to verify legal ownership of a property and identify any liens, encumbrances, or title defects.

TRID (TILA-RESPA Integrated Disclosure)

Federal regulations that require lenders to provide borrowers with the Loan Estimate and Closing Disclosure forms to improve transparency in mortgage transactions.

Truth in Lending Act (TILA)

Federal law requiring lenders to disclose loan terms and costs in a standardized format, helping borrowers compare loan offers.

Underwriting

The process of evaluating a loan application to determine the risk of lending to a particular borrower. Includes reviewing credit, income, assets, and property value.

Upfront Mortgage Insurance Premium (UFMIP)

A one-time fee paid at closing for FHA loans, in addition to the annual mortgage insurance premium.

USDA Loan

A mortgage program for eligible rural and suburban homebuyers, offering 100% financing with no down payment requirement through the U.S. Department of Agriculture.

VA Loan

A mortgage benefit available to eligible veterans, active-duty military, and surviving spouses, offering no down payment and no private mortgage insurance.

Vacancy Rate

The percentage of rental units that are vacant and not generating income, used to evaluate investment property performance.

Variable Rate

An interest rate that can change over time based on market conditions or an index rate. Same as adjustable rate.

Verification of Employment (VOE)

Documentation required by lenders to confirm a borrower's employment status and income for loan qualification purposes.

Warehouse Lending

Short-term financing that mortgage lenders use to fund loans before selling them to investors in the secondary market.

Warranty Deed

A deed that guarantees the grantor holds clear title to the property and has the right to sell it, providing maximum protection to the buyer.

Wraparound Mortgage

A financing arrangement where a new mortgage is created that includes the balance of an existing mortgage plus additional funds.

Yield

The return on investment expressed as a percentage, used to evaluate the profitability of real estate investments.

Yield Spread Premium

Compensation paid to mortgage brokers by lenders when the interest rate on a loan is higher than the minimum rate the lender would accept.

Zoning

Local government regulations that dictate how land can be used in specific areas, affecting property development and use restrictions.

Zoning Variance

Official permission to use property in a way that deviates from the current zoning requirements, granted by local authorities.

📚 Ultimate Mortgage & Real Estate Glossary

About This Glossary