Before you get a mortgage, get the facts, learn the terms and preview the process. Get started now.
A-Credit: The best credit rating (which often results in the lowest prices)
Acceleration clause: A provision that says the lender can demand the entire loan to be paid, in the event the borrower ever violates the agreement
Acceptance: When the seller approves of the buyer’s offer
Accrued interest: Interest that is earned, but not yet paid
Adjustment interval: Amount of time between interest rate changes on an adjustable rate mortgage
Adjustable rate mortgage (ARM): A mortgage loan with interest rates that change as the market does
Aggregate adjustment: Calculation used to prevent collecting more money for your escrow account than allowed
Agreement of sale: A contract signed by the buyer and seller
Amortization: The value of a loan over a period of time
Amount financed: Your loan amount, minus any prepaid charges
Annual percentage rate (APR): The true cost of a home loan
Appraisal: An estimate of the property’s current market value
Appreciation: A measurable increase in the home or property’s value
Assessed value: A value determined by the local government, then used to calculate annual property taxes
Assignment: Transfer of property ownership from one person to another
Assumable mortgage: A mortgage that can be transferred from the seller to buyer
Assumption: When the buyer agrees to become responsible for repaying an existing loan on the property
Automated underwriting: A process that can tell you very quickly (usually within minutes) whether or not you will be approved for a mortgage
Automated valuation model: A fast method for estimating the value of a property
Bequest: Property that’s given as a gift through a will
Blanket loan: A single mortgage that covers several structures on a piece of property
Blemished borrowers: People with a risk factor, like the inability to make a down payment
Borrower: The person who takes a mortgage loan
Bridge loan: A short-term loan taken to quickly effect a sale
Buy down: When you pay more to lower the initial interest rate on a home loan
Buyer’s market: When supply is greater than demand
Callable debt: When the lender requires you to pay the loan in full, before the end of the term
Cap: The maximum monthly payment on a loan
Capital gain: The profit that’s earned on a home or property
Capital gain tax: A tax on the profit that’s made from the sale of a home or property
Chain of title: A list of all previous property owners, in chronological order
Closing: The formal, documented sale of a home or property
Closing costs: Fees a buyer owes after their purchase
Closing statement: A list of all closing costs
Co-borrower: Someone who takes shared responsibility for a home loan
Collateral: Possessions used as security for loan repayment
Commitment letter: A document that includes the terms of a loan
Comparable sales: Calculating the cost of similar homes in the region
Contingency: Clauses that provide buyer or seller rights during the process
Conventional mortgage: A mortgage offered by government-sponsored entities
Conversion option: The ability to convert to an adjustable rate mortgage or a fixed rate mortgage
Conveyance: Written contract used to transfer the title of a property between the seller and buyer
Cost of Funds Index (COFI): used to determine the cost of adjustable rate mortgages
Cumulative interest: The total of all interest payments
Date of closing: The day all paperwork associated with the mortgage and sale is made final
Date of possession: The day the buyer will move in
Debt consolidation: The process of rolling all of your debt into one loan
Deed: An official document that establishes ownership
Default: Inability to make regular, consecutive payments on a loan
Delinquency: A mortgage payment that is more than 30 days late
Demand clause: A clause that allows the lender to demand repayment at any time, for any reason
Depreciation: A measurable decrease in the home or property’s value
Down payment: An amount you pay upfront, in cash, to get your loan
Earnest money: A sum of money put up when an offer is made, to assure the seller that the buyer is serious
Equity: The difference between the value of the home and the balance of the loans
Escrow account: A separate account held by a mortgage lender, out of which bills (separate from the loan) are paid
Fair market value: The price in the current market
Fee simple: Absolute ownership, without any limitations or conditions
FHA loan: A loan from the Federal Housing Administration, usually given to people who were unable to get a conventional loan
Finance charge: The total of all the interest you’ll pay over the life of your loan, plus all prepaid loan charges
Fixed rate period: The initial time when your interest rate won’t change
Fixed rate mortgage: A loan in which monthly payments are the same from month to month
Flexible payment: A plan that allows you to pay only the interest on your loan each month
Float: Proceeding with the mortgage without locking your interest rate
Forbearance: When a lender suspends payment on your mortgage, allowing you to make up for late payments
Good faith estimate: A list of anticipated loan costs and closing fees, given after the application for a home loan
Graduated payment mortgage: Starting with a low mortgage payment that gradually increases
High-risk loan: A loan given to borrowers with poor credit history
Home inspection: An examination of the home
Home inspection contingency clause: A clause that gives the buyer rights, pending the home inspection. (For example, if a defect is discovered during the home inspection, the buyer can ask that the seller repair it, or even pull their offer.)
Home price index: Tool that provides historical data on home prices in various regions
Initial interest rate: The rate at which an adjustable mortgage rate will begin
Installment loan: Borrowed money that you pay over a period of time
Interest: An amount of money you pay, in return for using a loan
Joint liability: When two people share responsibility for the debt
Joint ownership: When two people purchase a home or property together
Jumbo loans: Mortgages larger than the limit set by the government
Land contract: An agreement where a buyer makes payments toward a seller’s mortgage, instead of getting a new one
Lender: The bank or finance company that offers the loan
Lien: A formal, legal symbol of money owed
Loan: Money lent to a borrower
Long-term loan: A loan that matures in 10 or more years
Margin: The difference between the index and the interest rate
Maturity: The life span of a mortgage
Mortgage: A loan used to purchase or refinance a home
Mortgagee: Lender
Mortgagor: Borrower
Mortgage broker: The person who works with the buyer and the lender
Non-assumption clause: Statement that forbids the transfer of a mortgage to another person, without the lender’s approval
Offer: A proposal to buy a home for a certain amount
Per diem interest: Interest that’s calculated per day
Piggyback loan: A second mortgage that’s added to the first
Portable mortgage: A mortgage that can travel from one home to the next
Power of attorney: A legal document that gives someone the right to act on behalf of someone else
Prime rate: The best interest rate possible
Principal: The amount borrowed
Principal balance: The amount currently owed
Rate lock: A short-term agreement to hold an interest rate while the buyer negotiates a sale
Refinance: Negotiating a lower interest rate on a mortgage, which results in lower monthly payment
Right to recession: Your right to cancel a loan within three days of getting a mortgage
Sales contract: A formal document that includes the property address, condition, purchase price, inspections, date of closing, date of possession, etc.
Second mortgage: Gives borrowers the ability to access cash equity in their home
Security instrument: A mortgage deed that gives your lender a stake in the property
Seller concession: When the seller agrees to pay certain costs, on your behalf, at the closing
Seller’s market: When demand is greater than supply
Short-term loan: A loan that matures in less than 10 years
Sub-prime loan: A high-risk loan for people with poor credit
Survey: Establishes boundary lines and defines features that could affect the home or property’s value
Term: Period of time between the closing and the day full repayment is due
Title: Official document that specifies who owns a piece of property
Total payment: The total amount you’ll pay over the life of your loan
Truth in lending disclosure: A document that discloses interest rates, the amount to be loaned and the final cost of the loan — after it’s matured
Variable rate: An interest rate that changes, in relation to an index
Walk-through: A buyer’s final inspection of a home
Warranty deed: Indicates no past liens against the property
Ready to apply for your first mortgage? Before you do, be sure to read our blog: Mortgage 101: Tips for first-time home buyers.