Mortgage Glossary

earnest money deposit
The money deposited by a buyer under the terms of a contract, that is to be forfeited if the buyer defaults but applied on the purchase price if the sale is closed.

equity
Equity is the monetary difference between the fair market value of the property and the amount still owed on its mortgage and other liens. It is the market value of a property minus the amount of any existing loans or liens.

escrow account
A separate account for accumulating the portion of your monthly payments that will pay future taxes, insurance, fees, assessments and so forth.

escrow agent
A disinterested third party appointed to act as custodian for documents and funds during the transfer of property from seller to buyer.

estate
The ownership interest of an individual in real property. This is the sum total of all the real property and personal property owned by an individual at the time of death.

eviction
Eviction is the lawful expulsion of an occupant from real property.

fair market value
The highest price that a buyer, willing but not compelled to buy, would pay, and the lowest a seller, willing but not compelled to sell, would accept.

FHA financing
A loan insured by the Federal Housing Administration (FHA) and made by an approved lender in accordance with the FHA's regulations. Often referred to as a government loan.

financial index
An agreed upon basis for making interest rate changes on an adjustable rate mortgage. One example of a financial index could be the cost of U.S. Treasury Bonds.

fixed-rate mortgage
A mortgage loan in which the interest rate does not shift up or down during the entire term of the loan.

flood insurance
Insurance that compensates for physical property damages resulting from flooding. It is required for properties located in federally designated flood areas.

foreclosure
The legal process by which a borrower in default under a mortgage is deprived of his or her interest in the mortgaged property. This usually involves a forced sale of the property at public auction with the proceeds of the sale being applied to the mortgage debt.

initial interest rate
The interest rate charged for the first six or 12 months of an adjustable rate mortgage (before the first interest rate adjustment).

interest rate cap
Limit on the amount an adjustable rate mortgage may increase or decrease during specific intervals and over the term of the loan.

loan commitment
This is a written guarantee made by a lender to make a loan under certain terms and conditions. These include interest rate, length of the loan, lender fees, annual percentage rate, mortgage and hazard insurance and other special requirements.

LTV (loan to value ratio)
The ratio of the mortgage loan principal (amount borrowed) to the property's appraised value. On a $ 100,000 home, with a mortgage loan of $ 80,000, the loan to value ratio is 80%

mortgage broker
The mortgage broker, either an individual or company, hired to act as an intermediary between borrowers and lenders.

mortgage pre-approval service
A service offered by many lenders that allows the borrower to pre-qualify for financing before finding a property to buy.

note
A written promise to pay a certain amount of money at a certain time at a certain interest rate.

origination fee
The fee charged by the lender for making a real estate loan. The amount is typically a percentage of the amount loaned, such as one percent. This is different from the application fee.

PITI (Principal, Interest, Taxes, Insurance)
Stands for principal, interest, taxes, and insurance.

prepayment privilege
The right given to a buyer to pay all or part of a debt prior to its maturity. The mortgage cannot be compelled to accept any payment other than those originally agreed to.

pre qualification
The process of determining how much money a prospective home buyer will be eligible to borrow before a loan is applied for. Also see mortgage pre-approval service.

rate guarantee
The lender's guarantee, usually for a specified period of time, that the interest rate in effect the date you apply for a loan (or at the time of approval) will be the final rate on your loan when closed.

refinance
When refinancing, the borrower replaces an existing loan with a new one to get a lower rate, switch from one loan type to another, or convert equity to cash.

term
The number of years before a loan is paid in full; 15- to 30-year terms are most common for home mortgages.

title
A legal document evidencing a person's right to ownership of a property.

title insurance
Insurance secured to protect the lender (lender's policy) or the buyer (owner's policy) against loss arising from disputes over ownership of property.

underwriting
The process of evaluating a loan application to determine the risk involved for the lender. It involves an analysis of the borrower's credit worthiness and the quality of the property itself.

VA financing
A loan guaranteed by the Veterans Administration (VA) to a qualified veteran and made by an authorized lender on an approved property. Fixed and adjustable rates are available with VA loans.

warranty deed
A legal document used to convey title.

Glossary (A-D) | Glossary (E-Z)