WORDS HAVE MEANINGS
Glossary of mortgage terms
We know…there’s a lot of confusing jargon in mortgages. Hopefully you find the word you’re looking for in our glossary of mortgage terms. If not, please let us know — we’re always adding new entries!
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- 203(k) loan program What is a 203(k) loan? The 203(k) is an FHA loan program that permits funds for repairs, renovations, additions or other modifications to be financed all in the same loan used to buy (or refinance) a property.There are two versions of the loan available: the Streamline 203(k) and the(…) Read More
- 4506-T Form 4506-T Information The 4506-T, an IRS form, is a permission slip. When you sign it, you authorize us to request a transcript of your recent federal tax filings. We compare the numbers on these transcripts with the tax documents you provided and make sure they match. .stk-7fzbn3g(…) Read More
- Adjustable Rate Mortgage (ARM) What is an adjustable rate mortgage? An adjustable rate mortgage is a loan with an interest rate that can change. Because you are, in effect, sharing the risk of higher future interest rates with your lender, you will generally get a lower initial interest rate on an ARM than you will(…) Read More
- Aggregate Escrow Adjustment What is an Aggregate Escrow Adjustment? The aggregate escrow adjustment is a one-time credit applied to your escrow account at closing. Your “escrow” is the account in which your lender holds money to pay property taxes and insurance. By law, an escrow balance can never exceed actual(…) Read More
- Amortization What is amortization? The amortization of a loan is the process by which the balance is reduced over time. The payment schedule for your loan is called its amortization schedule. The payment schedule for your loan is called its amortization schedule—a table showing how each scheduled(…) Read More
- Annual Percentage Rate (APR) What is an Annual Percentage Rate? An Annual Percentage Rate (APR) is a measure of the total cost of a loan, expressed as a nominal yearly rate. Think of it as an aggregate of all loan-related costs—interest (of course), but also certain closing costs and any mortgage insurance. The(…) Read More
- Appraisal Waiver What is an Appraisal Waiver? An appraisal waiver means your loan doesn’t require an appraisal. To be eligible for a waiver, you must put at least 10% down and represent a low risk of default. Waivers come from an automated underwriting system that compares your purchase price to(…) Read More
- Appraisals What is an appraisal? An appraisal is a professional opinion of the value of the home you are buying. Your lender will order the appraisal from an independent, licensed appraiser. The appraisal is the most time-consuming step in the loan process. We will let you know the date by which(…) Read More
- Assumption What does assumption mean? An assumption of mortgage is a transfer of liability from one borrower to another on an already-existing loan. When permitted, an assumption allows a buyer to take over the seller’s mortgage. Although most fixed rate mortgages must be paid upon the transfer(…) Read More
- Balloon Payment What is a balloon payment? A balloon payment is a lump-sum payment, over and above the regular, minimum monthly installments due on a loan. Most loans are what is called “fully amortizing”, which is to say, the minimum monthly payment matches the loan term loan. Pay the minimum payment(…) Read More
- Should I make biweekly payments? A biweekly payment plan is sets you up to pay half of your mortgage payment every other week. With 52 weeks in the year, you’ll be paying 26 half payments annually or (drumroll) 13 full payments. The savings from a bi-weekly plan comes from adding this(…) Read More
- Conventional Mortgage What is a conventional mortgage? “Conventional mortgage” is a catchall term for any mortgage that is not some other type of mortgage. If your loan is not insured by FHA or guaranteed by USDA or VA, it is likely a conventional loan. The vast majority of conventional loans are sold to(…) Read More
- Cosigner What is a cosigner? A cosigner on a home mortgage is someone who agrees to be financially responsible for the loan if the primary borrower defaults on their payments. Cosigners are also known as non-occupant co-borrowers. See the entry under “Occupancy”. .stk-09r78o4 {height:50px(…) Read More
- Debt-to-Income Ratio (DTI) What is Debt-to-Income Ratio (DTI)? When assessing the amount a person is eligible to borrow, lenders rely heavily on a ratio of the borrower’s monthly debt to monthly income. This ratio, called a “debt-to-income” ratio or DTI. We calculate two ratios, called the “front” and “back”(…) Read More
- Discount Points What are discount points? Discount points are the most variable of all closing costs. (In fact they may be either a cost you pay or a credit you receive.) One discount point equals 1% of your loan amount. Although discount points are paid at closing, just think of them as part of the(…) Read More
- Early Issue Title Insurance What is Early Issue Title Insurance? Early Issue Title Insurance is a type of title insurance that protects against liens from contractors and suppliers. If you are purchasing a new or remodeled home and closing shortly after completion of work, your lender may require early issue(…) Read More
- Earnest Money What is Earnest Money? Earnest money is a deposit you’ll pay at the time you enter into a contract to show the seller you have both the intention and ability to perform on the offer you’ve written. Your contract will specify the amount (1-3% of the price is typical). At closing, your(…) Read More
- Earnest Money Agreement (EMA) What is an Earnest Money Agreement (EMA)? When you find a home you like, you and your Realtor will get together and write an offer to present to the seller. In Oregon, most often, you’ll hear the offer you write called an Earnest Money Agreement, or EMA, for short although the actual(…) Read More
- ECOA Valuations Waiver What is the ECOA Valuations rule? ECOA stands for “Equal Credit Opportunity Act” and among other things, the rule guarantees that you’ll receive a copy of the appraisal at least 3 business days before closing. When you sign the ECOA Valuation Waiver, you are only waiving the timeline(…) Read More
- Equity What is Equity? The equity in a piece of real estate is the difference between what you owe and what it is worth. You can think of your equity as the part of your home value that you “own”. As your home value increases and your loan balance decreases your equity increases. You can turn(…) Read More
- Escrow What is Escrow? An escrow is any arrangement where two parties agree to have a third party receive, hold and disburse funds and execute mutually agreed-upon instructions. In the context of buying your home, you’ll encounter two escrows. One begins when your offer is accepted by the(…) Read More
- Fannie Mae Who or what is Fannie Mae? Fannie Mae was charted by the US Congress in 1938 as part of the New Deal. Fannie’s cousin Freddie Mac was created in 1970. Both do the same thing: buy mortgages from lenders, package them into bundles (pools) of loans and then sell them into the secondary(…) Read More
- FHA What is the FHA? FHA stands for Federal Housing Administration (FHA). Through approved lenders, FHA provides mortgage insurance, protecting lenders from losses due to default. FHA and HUD have insured over 34 million home mortgages. .stk-9fn7m27 {height:50px(…) Read More
- FICO What is FICO? FICO is to credit score as Kleenex is to tissue or Xerox is to photocopy. Fair, Isaac and Company was founded by an engineer (Bill Fair) and mathematician (Earl Isaac) in 1956. What do you get when you cross an engineer with a mathematician? Turns out, you get credit(…) Read More
- Floating Fixed Rate What is a Floating Fixed Rate? A “floating fixed rate” is the “jumbo shrimp” of lending terminology, isn’t it? “Float” and “lock” refer to your rate lock, not the type of loan. While floating, your future fixed rate is yet to be determined. Interest rates change with market conditions(…) Read More
- Flood Insurance Do I need flood insurance? If your home or any outbuildings are in a Special Flood Hazard Area you will be required to carry flood insurance. Most listings include flood zone information, but if in doubt give us the address and we’ll check for you. Your regular insurance agent will(…) Read More
- Freddie Mac Who or what is Freddie Mac? Fannie Mae was charted by the US Congress in 1938 as part of the New Deal. Fannie’s cousin Freddie Mac was created in 1970. Both do the same thing: buy mortgages from lenders, package them into bundles (pools) of loans and then sell them into the secondary(…) Read More
- Hazard Insurance What is hazard insurance? Pretty interchangeably, you’ll see this insurance referred to as “homeowner’s” “hazard” or “fire” insurance. All refer to exactly the same thing. Most loans require that you cover 100% of the cost to reconstruct your home or at least the loan balance with no(…) Read More
- Home Equity Line of Credit What is a Home Equity Line of Credit? Picture a credit card with a really high limit. Now imagine that card uses your home for collateral. That’s pretty much a Home Equity Line of Credit (HELOC). For an initial “draw period” you can draw against and repay the loan repeatedly. When the(…) Read More
- Homeowners Association What is a Homeowners Association? A Homeowners Association (HOA) is a non-profit entity incorporated by the developer when a community is being built. The purpose and function of an HOA is defined by its Covenants, Conditions and Restrictions (CC&Rs), which are in public record and run(…) Read More
- HUD-1 (Settlement Statement) What is a HUD-1 (Settlement Statement)? The HUD-1 is the official accounting of all transaction costs and credits, including a to-the-penny figure for the funds you need to pay to close. Upon receipt of your loan documents, your escrow officer will prepare your HUD-1, a three or four(…) Read More
- Interest-Only Payment What is an Interest-Only Payment? A loan with an interest-only payment does not amortize—the minimum payment due is the interest accrued on the outstanding balance over the prior month. There are two (quite opposite) reasons to seek out a loan with an interest-only payment. If you want(…) Read More
- Interest Rate Lock What exactly is an interest rate lock? An interest rate lock is a commitment from your lender to close your loan at a certain rate and cost so long as closing occurs within a certain period of time. You are eligible to lock in a rate as soon as you know two things: 1) the address of(…) Read More
- Jumbo Loan What is a Jumbo Loan? “Jumbo” is one of the sillier bits of mortgage jargon, really. A jumbo loan is any conventional mortgage with a loan amount above the maximum that Fannie Mae and Freddie Mac will buy. In general, a jumbo loan requires a higher down payment, better credit and more(…) Read More
- Lender Credit What is a Lender Credit? A lender credit is the mirror image of discount points. Discount points increase your closing costs but reduce your interest rate, while a lender credit reduces your closing costs but increases your interest rate. Picture a teeter-totter with points on one end(…) Read More
- Lien Lien: what exactly is that? A lien is the public notice of a debt against a person or a thing. Most liens are recorded on a first-come, first-serve basis. The order in which liens are filed is called “lien priority”. A lender in first lien position has no barrier to foreclosure. A debt(…) Read More
- LLPAS What are LLPAs? Loan Level Pricing Adjustments (LLPAs) are risk-based fees built into the cost of most loans. They’re a paradox — invisible yet potentially the costliest element of your loan. The logic behind LLPAs is simple: Imagine you’re a lender with two loan applications. One(…) Read More
- Loan Application What is the Loan Application? The actual, literal application. On the loan application, you’re asking for a loan and sharing the information we need to process it. The initial application is the first draft of a “living” document that takes shape as we gather information. If you see(…) Read More
- Loan Estimate What is the Loan Estimate? The Loan Estimate (LE) is an official, standardized document that outlines your loan’s terms, estimated monthly payments, and closing costs. It takes the numbers you’ve already seen on a loan summary and puts them into an official format — it’s just your loan(…) Read More
- LTV: Loan-to-Value Ratio What is Loan-to-Value Ratio? To calculate your loan-to-value ratio (LTV), divide your loan amount by the lesser of your appraised value or your sales price. If you borrow $80k on a $100k purchase, you’re at an 80% LTV. You can think of the LTV as the inverse of your down(…) Read More
- Mortgage Application What is the Mortgage Application? The actual, literal application. On the mortgage application, you’re asking for a loan and sharing the information we need to process it. The initial application is the first draft of a “living” document that takes shape as we gather information. If(…) Read More
- Mortgage Insurance What is Mortgage Insurance? Mortgage insurance (MI) provides lenders with coverage against financial losses in the even of a default and foreclosure. If you put less than 20% down, your loan will most likely require mortgage insurance. MI can feel like a raw deal—you pay for coverage(…) Read More
- NegAm: Negative Amortization What is Negative Amortization? A loan with Negative Amortization (NegAm) has a minimum monthly payment that does not cover all accrued interest. Each month’s deferred interest gets added to the principal. The result is in an increasing loan balance and interest due on interest. A NegAm(…) Read More
- Note Rate What is the Note Rate? The note rate is rate at which you pay interest on your home loan. At closing you will sign a promissory note, containing all of the terms of your loan. The note rate is quite literally the interest rate on this document, used to calculate your monthly(…) Read More
- Occupancy What is Occupancy? Whether or not and how you intend to occupy the property you are buying is an important part of your loan application. Your planned occupancy affects amount you are required to put down, interest rate, loan costs and even the availability of certain loan(…) Read More
- Oregon Bond Program What is the Oregon Bond Program? Through the Oregon Housing and Community Services (OHCS) Residential Loan Program, the State of Oregon offers below-market rate loans to qualifying eligible buyers. The Oregon Housing and Community Services Residential Loan Program is a mouthful, so(…) Read More
- Oregon Department of Veterans Affairs What is the Oregon Department of Veterans Affairs (ODVA)? Did you know Oregon Department of Veterans Affairs (ODVA) has a home loan program? Well it does. It is not what you might traditionally think of as a VA loan. Rather it is a conventional loan offered at below-market rates to(…) Read More
- PITI What is PITI? PITI is an acronym for “Principal, Interest, Tax and Insurance”. Your PITI is your total monthly payment including the loan payment, property taxes and homeowners’ insurance, mortgage insurance (if applicable) and homeowners’ association dues (if applicable). Lenders use(…) Read More
- Power of Attorney What is Power of Attorney? A Power of Attorney (POA) is a written authorization, giving one person (the “attorney-in-fact”) the legal authority to act on behalf of another (the “grantor”). For a POA to be acceptable for mortgage documents it must be Specific. Really specific—naming a(…) Read More
- Preapproval What is Preapproval? A preapproval is preliminary mortgage approval. Securing a preapproval is an essential first step when you are thinking of buying a home. It provides you with a solid understanding of the loan terms and amount of loan available to you, proof of your ability to buy(…) Read More
- Prelim What is Prelim? The title company quizzes the seller, digs into public record, finds all that they can on the current state of the title. Then they issue a preliminary title report or “prelim”. At closing, the title insurance company is going to issue insurance policies, insuring that(…) Read More
- Prepayment Penalty What is a Prepayment Penalty? A prepayment penalty is a lending provision that, if triggered, requires the payment of extra interest or a fee due to paying your loan off early. Most prepayment penalties run for an initial period of years—typically expiring after one, three or five(…) Read More
- Prequalification What is Prequalification? A prequalification is the first step on the path toward a loan approval. If you’ve provided information to a lender and the lender has told you “looks good”, you are prequalified. The exchange of information can be very informal, involving as little as a brief(…) Read More
- Pro-Rates What are Pro-Rates? Pro-rates are items that are calculated proportionately. A number of items may be prorated when you close on real estate transaction. You and the seller pay a prorated share of property taxes. If the seller keeps possession of your property after closing, you will(…) Read More
- Qualified Mortgage What is a Qualified Mortgage? Qualified Mortgage (QM) rules went into effect January 2014. A Qualified mortgage is a loan that has substantially equal monthly payments, has no interest-only, balloon payment or negative amortization features and (if it has an adjustable rate) uses the(…) Read More
- Recast What is Recast (Re-amortization)? Some mortgages can be set up with the option to re-amortize or “recast” after closing. When recasting, you pay an extra lump-sum toward principal and your lender actually refigures your monthly payment, based on your new, lower loan balance and(…) Read More
- Refinance What is a Refinance? A refinance is the process by which you replace an existing mortgage with a new one (or take out a mortgage secured to a property you own outright). You can only refinance a home that you already own.Reasons to refinance include: • Lowering your interest rate•(…) Read More
- Rescission Period What is the Rescission Period? A rescission period gives you the right to back out of a refinance loan before closing with no penalty. Think of it as your Right to Get Cold Feet. Federal law requires a 3-day rescission period whenever you refinance a primary residence.To satisfy the(…) Read More
- Reserves What are Reserves? The money you have left over after you’ve paid your down payment and all closing costs are your Reserves. Kind of your “In Case of Emergency: Break Glass” money. Many loans require a minimum amount of reserves. Jumbo loans and loans for investment properties, tend to(…) Read More
- Second Mortgage What is a Second Mortgage? A second mortgage is a loan that is in subordinate lien position to another mortgage. In other words, another mortgage came first and recorded an interest in the property in public record. The lender who got there first, is in first lien position and has no(…) Read More
- Servicing What is Servicing? Two assets are created at the time that you close on your loan: a promissory note and servicing rights. The first is the obvious of the two: at closing you sign a promissory note agreeing to pay back what you’re borrowing, plus interest. As you make payments, the(…) Read More
- Short Sale What is a Short Sale? In order to hand over ownership of a property to you, your seller must first clear all debts secured to the property. A short sale is what happens when a seller accepts an offer that isn’t high enough cover all selling costs and pay off the seller’s debts.(…) Read More
- Subordination What is a Subordination? A subordination is the solution to the following problem: Let’s say you have a first and second mortgage. You want to refinance your first mortgage, but you don’t want to pay off your second mortgage. Or maybe your second mortgage is a home equity line of(…) Read More
- Title Insurance What is Title Insurance? Title insurance is, quite literally, insurance covering losses due to any defects found in the title to your property. At closing, the title company will issue two policies—an Owners’ policy, paid for by the seller and protecting you, and a Lender’s policy,(…) Read More
- Underwriting What is Underwriting? Underwriting is the process your application goes through to determine whether or not you are eligible for the loan you’ve requested. Each loan program has a set of guidelines. These include things like the minimum credit score, maximum debt-to-income ratio,(…) Read More
- USDA What is a USDA loan? The US Department of Agriculture (USDA) was established in 1935 to bring electricity to rural areas during the Great Depression. Gradually its mission expanded to include a bunch of things, including extending credit for rural development.Through the Single Family(…) Read More
- VA loan (Dept of Veterans’ Affairs) What is a VA loan? The VA loan program (through the Department of Veterans’ Affairs) is open to active duty members of the armed services and Veterans who meet minimum service requirements. Surviving Spouses, members of the National Guard and Reservists may also qualify. Origin of the(…) Read More
- Vesting What is Vesting? Vesting is how you take title to the property that you are buying. A deed will be recorded in public record to convey ownership of the property from the seller to you. Your vesting is how you are listed on this deed.Vesting is particularly important when multiple(…) Read More
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