Mortgage Terms 101


A loan secured by real estate, typically used to purchase a home or property.


The act of acquiring real estate property.

Mortgage Insurance Premium - MIP

Insurance paid by the borrower to protect the lender in case of default on an FHA loan.

Private Mortgage Insurance - PMI

Insurance coverage that protects the lender in case the borrower defaults on the loan, typically required for borrowers with a down payment less than 20% of the home’s purchase price.


The process of replacing an existing mortgage with a new loan, often to obtain better terms or lower interest rates.

Mortgage Insurance

Insurance coverage that protects the lender in case the borrower defaults on the loan, typically required for loans with a high loan-to-value ratio.

Flood Insurance

Insurance coverage protecting against property loss due to flooding.

Interest Rate

The percentage charged by the lender for borrowing the principal amount, expressed annually.


The cost of borrowing money, typically expressed as a percentage of the loan amount.

Property Taxes

Taxes levied by local governments on property owners, based on the assessed value of the property.


The original amount of money borrowed in a loan, excluding interest.

Loan To Value Ratio - LTV

The ratio of the loan amount to the appraised value of the property, expressed as a percentage.

Homeowner's Insurance

Insurance coverage that protects against financial losses due to damage or destruction of a home and its contents.

Debt To Income Ratio - DTI

A financial ratio calculated by dividing a borrower’s total monthly debt payments by their gross monthly income, used by lenders to assess a borrower’s ability to manage additional debt.

Credit Score

A numerical representation of a borrower’s creditworthiness, based on their credit history and financial behavior.


The process of evaluating a borrower’s creditworthiness and risk factors to determine whether to approve a loan application.

Loan Officer

A professional who assists borrowers in obtaining loans, typically employed by a bank or mortgage company.


Money borrowed from a lender, to be repaid with interest over time.


A person who assesses the risk of lending money and determines whether to approve or deny a loan application.

Mortgage Broker

A licensed professional who connects borrowers with lenders and helps facilitate the mortgage application process.


Upfront fees paid to a lender at closing in exchange for a lower interest rate on a mortgage loan.

Mortgage Banker

A financial institution that originates and funds mortgage loans.

Down Payment

A portion of the home’s purchase price paid upfront by the buyer, typically expressed as a percentage of the total purchase price.


The process of paying off a loan over time through regular payments, which include both principal and interest.


The individual or entity that receives funds from a lender and is obligated to repay the loan.


An arrangement in which a neutral third party holds funds or documents on behalf of two parties involved in a transaction, such as the purchase of a home.

Escrow Account

An account held by a third party where funds are held until certain conditions are met, such as the closing of a real estate transaction.


The difference between the fair market value of a property and the outstanding balance on the mortgage loan.

Fixed Rate Mortgage

A mortgage with a constant interest rate for the entire term of the loan, providing stability in monthly payments.


The financial institution or individual that provides funds to a borrower in the form of a loan.

Adjustable Rate Mortgage - ARM

A mortgage with an interest rate that can change periodically based on market conditions, typically with an initial fixed-rate period followed by adjustable rates.

Prequalification - Prequalified

An initial evaluation by a lender to estimate how much a borrower may be eligible to borrow, based on self-reported financial information.

Recast - Re-cast

The process of adjusting the monthly payment on a mortgage loan, typically after a large principal payment.

Pre-approval Letter - PAL

A letter from a lender indicating that a borrower is pre-approved for a mortgage loan, based on their credit and financial information.


A preliminary assessment by a lender indicating the amount a borrower can borrow based on income, credit history, and other factors.

Negative Amortization

A preliminary assessment by a lender indicating the amount a borrower can borrow based on income, credit history, and other factors.

Property Type

The classification of real estate, such as single-family home, condominium, or multi-family dwelling.

Investment Property

Real estate purchased with the intention of generating income or profit through rental income or capital appreciation.

Primary Residence

The main home where a person resides.

Single Family Home

A standalone residential dwelling designed for one family.

Second Home

A property used as a vacation home or secondary residence.


The status of a property as either owner-occupied, tenant-occupied, or vacant.

Planned Unit Development - PUD

A type of residential development with a combination of housing types and shared common areas.


A condition that must be met for a real estate contract to be binding.


A professional assessment of the value of a property, typically conducted by a licensed appraiser.

Purchase Agreement - Purchase Contract

A legally binding agreement between a buyer and seller outlining the terms and conditions of a property sale.

Condominium - Condo

A type of housing where individual units are owned by residents, with shared ownership of common areas.

Temporary Rate Buydown

A temporary reduction in the interest rate of a mortgage loan, usually paid for by the seller.

Title Company

A company that ensures a property has a clear title and handles the transfer of ownership during a real estate transaction.


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

Permanent Rate Buydown

A permanent reduction in the interest rate of a mortgage loan, typically paid for by the borrower.

Title Insurance

Insurance coverage that protects against financial losses due to defects in the title of a property, such as liens or ownership disputes.

Recording Fees

Fees paid to a government agency for recording a real estate transaction in public records.

Lender Credits

Money paid by a lender to cover some or all of a borrower’s closing costs.


Legal ownership of a property.


A temporary pause or reduction in mortgage payments granted by a lender to a borrower facing financial hardship.


The legal process by which a lender repossesses a property due to default on the mortgage loan.

Seller Concessions - Seller Credits

Contributions made by the seller to cover the buyer’s closing costs or other expenses.

Rate Lock

An agreement between the borrower and lender to fix the interest rate on a mortgage loan for a specified period, typically until closing.

Locked In

The process of securing a specific interest rate for a mortgage loan for a set period of time.

Closing Disclosure

A document provided to the borrower by the lender before closing, detailing the final terms and costs of the mortgage loan.

Initial Disclosures

Documents provided to a borrower outlining the terms and costs of a mortgage loan shortly after application.

Cash Out Refinance

Refinancing a mortgage loan for more than the current balance, with the borrower receiving the difference in cash.


The length of time over which a loan must be repaid, typically expressed in years.

Rate and Term Refinance

Refinancing a mortgage loan to change the interest rate, term, or other terms of the loan without cashing out equity.

Limited Cash Out Refinance

Refinancing a mortgage loan for an amount that is not significantly greater than the existing loan balance, with some cash being taken out.

Broker Compensation

The fees or commissions paid to a mortgage broker for arranging a loan.


The process of initiating a mortgage loan, including application, processing, and underwriting.

Conventional Loan

A mortgage not insured or guaranteed by a government agency, such as Fannie Mae or Freddie Mac.

VA Loan - Veteran's Administration Loan

A mortgage guaranteed by the U.S. Department of Veterans Affairs (VA), available to eligible veterans, active-duty service members, and certain spouses.

FHA Loan - Federal Housing Administration Loan

A mortgage insured by the Federal Housing Administration (FHA), typically offering more flexible qualification requirements and lower down payment options.

USDA Loan - United States Department of Agriculture Loan

A mortgage insured by the U.S. Department of Agriculture (USDA), available to eligible borrowers in rural and suburban areas.

QM - Qualified Mortgage

A mortgage loan that meets certain standards to ensure the borrower’s ability to repay.

Non QM

A mortgage loan that does not meet the standards of a qualified mortgage.

Mobile Home

A prefabricated home that can be moved to different locations.

Manufactured Home

A factory-built home constructed according to federal building codes.

Mortgage Servicer

The entity responsible for collecting mortgage payments from borrowers and managing the loan account.

Under Contract

A phase in the home buying process where a buyer and seller have agreed on the terms of the sale, but the sale has not yet been finalized.


The final step in the home purchase process, where legal documents are signed, and ownership of the property is transferred from seller to buyer.

Inspection - Home Inspection

A thorough examination of a property’s condition, typically conducted by a professional inspector, to identify any issues or defects.

Appraisal Contingency

A clause in a purchase contract that allows the buyer to back out of the sale if the property does not appraise for at least the agreed-upon purchase price.

Financing Contingency

A clause in a purchase contract stating that the sale is contingent on the buyer obtaining financing.

Option Period

A specified period during which a buyer can cancel a contract without penalty.

Good Faith Estimate

An estimate provided by a lender to a borrower outlining the expected costs and terms of a mortgage loan.

Loan Estimate

A form provided to a borrower by a lender outlining the estimated terms and costs of a mortgage loan.

High Balance Loan

A mortgage loan that exceeds the conforming loan limits set by government-sponsored enterprises.

Jumbo Loan

A mortgage loan that exceeds the conforming loan limits set by Fannie Mae and Freddie Mac, typically used for high-value properties.

Down Payment Assistance

Financial assistance provided to help homebuyers cover a portion of their down payment or closing costs.

Amortization Schedule

A table showing the breakdown of each mortgage payment, including the portion allocated to principal and interest over the life of the loan.

Reverse Mortgage

A type of loan available to homeowners age 62 and older, allowing them to convert part of their home equity into cash without selling the property.

Second Mortgage

A subordinate mortgage taken


A legal claim against a property as security for a debt.

Lien Position

The priority of a lien in relation to other liens on a property.

HELOC - Home Equity Line of Credit

A line of credit secured by the equity in a home.


A mortgage loan with a large final payment due at the end of the loan term.


A mortgage loan that meets the guidelines set by government-sponsored enterprises.

Interest Only

A mortgage loan where the borrower only pays interest for a specified period, with principal payments deferred.

Settlement Statement

A document provided to parties in a real estate transaction outlining all costs and fees involved in the closing.

Real Estate Agent - Realtor

A licensed professional who represents buyers or sellers in real estate transactions.


The amount of money due on a mortgage loan each month, including principal and interest.

Mortgage Statement

A monthly statement provided by the lender to the borrower outlining the details of the mortgage loan.

Payoff - Mortgage Payoff

The total amount required to fully satisfy a mortgage loan.

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