A mortgage with an interest rate that adjusts periodically, after it has stayed at the same rate for a certain amount of time. An ARM usually starts with an interest rate that’s lower than that of a fixed-rate mortgage, but it changes over time based on the index and margin. To some borrowers, this option may seem risky, and many borrowers prefer a fixed rate because they get to enjoy consistent monthly payments (which can help simplify budgeting). But for other borrowers, an adjustable-rate means a possibly lower rate, which can result in lower monthly payments during those favorable market times.

The process of paying off a mortgage in planned, incremental payments. For mortgages, this is often displayed in a table, called an amortization schedule, and shows the estimated monthly payment, the interest portion of the payment, the principal, the remaining balance, and more. Amortization helps the borrower estimate how much they’ll pay over the course of their loan and helps give a clear picture of how much they’re paying at any given time.

The cost of a loan or other financing as an annual rate. The APR includes the interest rate, points, broker fees, and certain other credit charges a borrower is required to pay.

An amount paid yearly or at other regular intervals, often at a guaranteed minimum amount. Also, a type of insurance policy in which the policyholder makes payments for a fixed period or until a stated age, and then receives annuity payments from the insurance company.

The fee that a mortgage lender or broker charges to apply for a mortgage to cover processing costs.

A professional analysis used to estimate the value of the property. This includes examples of sales of similar properties.

A professional who conducts an analysis of the property, including examples of sales of similar properties in order to develop an estimate of the value of the property. The analysis is called an “appraisal.”

An increase in the market value of a home due to changing market conditions and/or home improvements.

A process where disputes are settled by referring them to a fair and neutral third party (the arbitrator). The disputing parties agree in advance to agree with the decision of the arbitrator. There is a hearing where both parties have an opportunity to be heard, after which the arbitrator makes a decision.

A toxic material that was once used in housing insulation and fireproofing. Because some forms of asbestos have been linked to certain lung diseases, it is no longer used in new homes. However, some older homes may still have asbestos in these materials.

Typically the value is placed on the property for the purpose of taxation.

A public official who establishes the value of a property for taxation purposes.

Anything of monetary value that is owned by a person or company. Assets include real property, personal property, stocks, mutual funds, etc.

A document evidencing the transfer of ownership of a mortgage from one person to another.

A mortgage loan that can be taken over (assumed) by the buyer when a home is sold. An assumption of a mortgage is a transaction in which the buyer of real property takes over the seller’s existing mortgage; the seller remains liable unless released by the lender from the obligation. If the mortgage contains a due-on-sale clause, the loan may not be assumed without the lender’s consent.

A homebuyer’s agreement to take on the primary responsibility for paying an existing mortgage from a home seller.

A fee a lender charges a buyer who will assume the seller’s existing mortgage.

An automated process performed by a technology application that streamlines the processing of loan applications and provides a recommendation to the lender to approve the loan or refer it for manual underwriting.

A financial statement that shows assets, liabilities, and net worth as of a specific date.

A mortgage with monthly payments often based on a 30-year amortization schedule, with the unpaid balance due in a lump sum of time (usually 5 or 7 years). The mortgage may contain an option to “reset” the interest rate to the current market rate and to extend the due date if certain conditions are met.

A final lump sum payment that is due, often at the maturity date of a balloon mortgage.

Legally declared unable to pay your debts. Bankruptcy can severely impact your credit and your ability to borrow money.

Income before taxes are deducted. Also known as “gross income.”

A mortgage with payments due every two weeks (instead of monthly).

In good faith, without fraud.

A short-term loan secured by the borrower’s current home (which is usually for sale) that allows the proceeds to be used for building or closing on a new house before the current home is sold. Also known as a “swing loan.”

An individual or firm that acts as an agent between providers and users of products or services, such a mortgage broker or real estate broker. See also “Mortgage Broker.”

Local regulations that set forth the standards and requirements for the construction, maintenance, and occupancy of buildings. The codes are designed to provide for the safety, health, and welfare of the public.

An arrangement whereby the property developer or another third party provides an interest subsidy to reduce the borrower’s monthly payments typically in the early years of the loan.

An account in which funds are held so that they can be applied as part of the monthly mortgage payment as each payment comes due during the period that an interest rate buydown plan is in effect.

Costs that the home buyer is required to pay before their loan closes. Closing costs can be anything from attorney fees and recording fees to miscellaneous costs associated with the mortgage closing.

For an adjustable-rate mortgage (ARM), a limitation on the amount the interest rate or mortgage payments may increase or decrease. See also “Lifetime Payment Cap,” “Lifetime Rate Cap,” “Periodic Payment Cap,” and “Periodic Rate Cap.”

Your ability to make your mortgage payments on time. This depends on your income and income stability (job history and security), your assets and savings, and the amount of your income each month that is left over after you’ve paid for your housing costs, debts, and other obligations.

A refinance transaction in which the borrower receives additional funds over and above the amount needed to repay the existing mortgage, closing costs, points, and any subordinate liens.

A document issued by a bank or other financial institution that is evidence of a deposit, with the issuer’s promise to return the deposit plus earnings at a specified interest rate within a specified time period.

A document issued by the U.S. Department of Veterans Affairs (VA) certifying a veteran’s eligibility for a VA-guaranteed mortgage loan.

The history of all of the documents that have transferred title to a parcel of real property, starting with the earliest existing document and ending with the most recent.

A change in the original construction plans ordered by the property owner or general contractor.

Ownership that is free of liens, defects, or other legal encumbrances.

The process of completing a financial transaction. For mortgage loans, the process of signing mortgage loans, the process of signing mortgage documents, disbursing funds, and, if applicable, transferring ownership of the property. In some jurisdictions, closing is referred to as “escrow,” a process by which a buyer and seller deliver legal documents to a third party who completes the transaction in accordance with their instructions. See also “Settlement.”

The person or entity that coordinates the various closing activities, including the preparation and recordation of closing documents and the disbursement of funds. (May be referred to as an escrow agent or settlement agent in some jurisdictions.) Typical, the closing is conducted by title companies, escrow companies, or attorneys.

The upfront fees charged in connection with a mortgage loan transaction. Money paid by a buyer (and/or seller or other third parties, if applicable) to affect the closing of a mortgage loan, generally including, but not limited to a loan origination fee, title examination and insurance, survey, attorney’s fee, and prepaid items, such as escrow deposits for taxes and insurance.

The date on which the sale of a property is to be finalized and a loan transaction completed. Often, a real estate sales professional coordinates the setting of this date with the buyer, the seller, the closing agent, and the lender.

A Closing Disclosure is a document that provides final details about your home loan. It includes things like the loan terms, your projected monthly payments, and a breakdown of how much you’ll pay in closing costs. Your lender is required to give you a Closing Disclosure at least three business days before you close. This window allows you to review the numbers and gives you a chance to ask questions before you reach the closing table.

When a home buyer is having their home built on a piece of land, they will usually finance the purchase and construction of the home with a construction mortgage. The lender will advance money based on the builder’s construction schedule. After the home is done being built, the construction mortgage will convert to a permanent mortgage.

See “HUD-1 Settlement Statement.”

Any borrower other than the first borrower whose name appears on the application and mortgage note, even when that person owns the property jointly with the first borrower and shares liability for the note.

An asset that is pledged as security for a loan. The borrower risks losing the asset if the loan is not repaid according to the terms of the loan agreement. In the case of a mortgage, the collateral would be the house and real property.

The fee charged for services performed, usually based on a percentage of the price of the items sold (such as the fee a real estate agent earns on the sale of a house).

A binding offer from your lender that includes the amount of the mortgage, the interest rate, and repayment terms.

Those portions of a building, land, or improvements and amenities owned by a planned unit development (PUD) or condominium project’s homeowners’ association (or a cooperative project’s cooperative corporation) that are used by all of the unit owners, who share in the common expenses of their operation and maintenance. Common areas include swimming pools, tennis courts, and other recreational facilities, as well as common corridors of buildings, parking areas, means of ingress and egress, etc.

An abbreviation for “comparable properties,” which are used as a comparison in determining the current value of a property that is being appraised.

Something given up or agreed to in negotiating the sale of a house. For example, the sellers may agree to help pay for closing costs.

A unit in a multi-unit building. The owner of a condominium unit owns the unit itself and has the right, along with other owners, to use the common areas but does not own the common elements such as the exterior walls, floors, and ceilings or the structural systems outside of the unit; these are owned by the condominium association. There are usually condominium fees for building maintenance, property upkeep, taxes and insurance of the common areas and reserves for improvements.

A loan for financing the cost of construction or improvements to a property; the lender disburses payments to the builder at periodic intervals during construction.

A condition that must be met before a contract is legally binding. For example, home purchasers often include a home inspection contingency; the sales contract is not binding unless and until the purchaser has the home inspected.

A mortgage loan that is not insured or guaranteed by the federal government or one of its agencies, such as the Federal Housing Administration (FHA), the U.S. Department of Veterans Affairs (VA), or the Rural Housing Service (RHS). Contrast with “Government Mortgage.”

A provision of some adjustable-rate mortgage (ARM) loans that allows the borrower to change the ARM to a fixed-rate mortgage under specified conditions.

An adjustable-rate mortgage (ARM) that allows the borrower to convert the loan to a fixed-rate mortgage under specified conditions.

A project in which a corporation holds title to a residential property and sells shares to individual buyers, who then receives a proprietary lease as their title.

An index that is used to determine interest rate changes for certain adjustable-rate mortgage (ARM) loans. It is based on the weighted monthly average cost of deposits, advances, and other borrowings of members of the Federal Home Loan Bank of San Francisco.

An offer made in response to a previous offer. For example, after the buyer presents their first offer, the seller may make a counter-offer with a slightly higher sale price.

The ability of a person to borrow money, or buy goods by paying over time. Credit is extended based on a lender’s opinion of the person’s financial situation and reliability, among other factors.

A company that gathers information on consumers who use credit. These companies sell that information to lenders and other businesses in the form of a credit report.

Information in the files of a credit bureau, primarily comprised of a list of individual consumer debts and a record of whether or not these debts were paid back on time or “as agreed.” Your credit history is called a credit report when provided by a credit bureau to a lender or other business.

A type of insurance that pays off a specific amount of debt or a specified credit account if the borrower dies while the policy is in force.

Information provided by a credit bureau that allows a lender or other business to examine your use of credit. It provides information on money that you’ve borrowed from credit institutions and your payment history.

A numerical value that ranks a borrower’s credit risk at a given point in time based on a statistical evaluation of information in the individual’s credit history that has been proven to be predictive of loan performance.

A person who extends credit to whom you owe money.

Your ability to qualify for credit and repay debts.

Money owed from one person or institution to another person or institution.

The percentage of gross monthly income that goes toward paying for your monthly housing expense, alimony, child support, car payments, and other installment debts, and payments on revolving or open-ended accounts, such as credit cards.

The legal document transferring ownership or title to a property.

The transfer of title from a borrower to the lender to satisfy the mortgage debt and avoid foreclosure. Also called a “voluntary conveyance.”

A legal document in which the borrower transfers the title to a third party (trustee) to hold as security for the lender. When the loan is paid in full, the trustee transfers title back to the borrower. If the borrower defaults on the loan the trustee will sell the property and pay the lender the mortgage debt.

Failure to fulfill a legal obligation. A default includes failure to pay on a financial obligation but also may be a failure to perform some action or service that is non-monetary. For example, when leasing a car, the lessee is usually required to properly maintain the car.

Failure to make a payment when it is due. The condition of a loan when a scheduled payment has not been received by the due date but generally used to refer to a loan for which payment is 30 or more days past due.

A decline in the value of a house due to changing market conditions or lack of upkeep on a home.

A fee paid by the borrower at closing to reduce the interest rate. A point equals one percent of the loan amount.

A portion of the price of a home, usually between 3-20%, not borrowed & paid up-front in cash. Some loans are offered with zero down payment.

A provision in a mortgage that allows the lender to demand repayment in full of the outstanding balance if the property securing the mortgage is sold.

The deposit to show that you’re committed to buying the home. The deposit usually will not be refunded to you after the seller accepts your offer unless one of the sales contract contingencies is not fulfilled.

A right to the use of, or access to, land owned by another.

A program in which companies assist their employees in purchasing homes by providing assistance with the down payment, closing costs, or monthly payments.

The intrusion onto another’s property without right or permission.

Any claim on a property, such as a lien, mortgage, or easement.

A federal law that requires lenders to make credit equally available without regard to the applicant’s race, color, religion, national origin, age, sex, or marital status; the fact that all or part of the applicant’s income is derived from a public assistance program; or the fact that the applicant has in good faith exercised any right under the Consumer Credit Protection Act. It also requires various notices to consumers.

The value in your home above the total amount of the liens against your home. If you owe $100,000 on your house but it is worth $130,000, you have $30,000 in equity.

In mortgages, escrow is an account that the mortgage lender establishes on behalf of the borrower which holds the money they pay toward property taxes, homeowners insurance, and mortgage insurance, if applicable. Then, when it comes time to pay those bills, the money in the borrower’s escrow account will be automatically distributed. With an escrow account, homeowners don’t have to worry about getting property tax and homeowners insurance bills in the mail. That money is already included in their monthly mortgage payment so, when the time comes, their loan servicer will distribute the funds appropriately.

A mortgage where the interest rate and the term of the loan are negotiated and set for the life of the loan. The terms of fixed-rate mortgages can range from 10 to 30 years.

A part of the mortgage process that determines the condition of a home. During a home inspection, a professional home inspector closely examines the home looking for wear, damage, and hazards—anything that could affect the buyer’s investment. This may take much longer than the appraisal and is very thorough. The home buyers are welcome to be present for the home inspection but it is not required. The home buyers will hire their own inspector in order to protect their best interests. The result is a final checklist that the buyers can use to negotiate repairs with the seller.

A form of property insurance that covers losses or damages to a person’s home and assets within the home. The borrower is required to secure homeowners insurance before the mortgage closing date. The homeowners insurance policy must list the lender as the loss payee in the event of fire, flood, or other event where the home or assets in the home are damaged.

This is a calculation a mortgage lender uses to express the ratio of a mortgage loan to the value of the home. The LTV ratio is calculated by dividing the loan amount by the value of the home. It’s used to measure risk—the higher the LTV ratio, the riskier the mortgage is from the lender’s perspective. This doesn’t necessarily mean the borrower will be denied a mortgage. Sometimes, it means the lender will charge a higher interest rate or require the borrower to purchase mortgage insurance.

This is the cost to originate a mortgage. During the mortgage application process, the borrower may be required to pay an origination fee. This may include application, underwriting, and processing fees. It generally costs between 0.5% and 1% of the total mortgage loan amount.

This term is used to describe the loan amount of the mortgage. As the borrower makes payments on the mortgage, the principal balance goes down. The other three main things included in a mortgage payment (aside from principal) are interest, taxes, and insurance.

Insurance that protects the lender against losses in case the borrower defaults on their mortgage. Mortgage insurance is usually required if the borrower’s down payment is less than 20% of the purchase price.

(Also called settlement fees or closing costs.) Various costs associated with the closing of a mortgage. This can include discount points, an appraisal fee, title search and insurance, taxes, survey, deed recording fee, credit report charge, and more. Prior to closing, the attorneys involved in the mortgage closing will meet to determine the final costs that are associated with the loan. These settlement costs are disclosed to all parties before the closing table so that they can be prepared to pay.

Insurance that protects the home buyers and the mortgage lender against defects or problems with title transfer. Since the lender is using the home as collateral for the transaction, title insurance helps them be certain that the title of the property is clear of any liens which could jeopardize the mortgage.