Glossary

0-9

1003 Form: The standard mortgage application form you’ll complete when applying for a home loan. This document captures your financial picture—income, employment, assets, debts, and details about the property you want to purchase. Also called the Uniform Residential Loan Application (URLA), it’s required for virtually all mortgage applications.

1004 Form: The standardized appraisal report form used to document a property’s value. When an appraiser evaluates your prospective home, they’ll record their findings on this form, also known as the Uniform Residential Appraisal Report (URAR). This report helps your lender confirm the home is worth the purchase price.

1025 Form: A specialized appraisal form used for properties with 2 to 4 units. If you’re purchasing a duplex, triplex, or fourplex and plan to use rental income to qualify for your mortgage, this form documents both the property value and the income potential.

1073 Form: The appraisal form specifically designed for condominium properties. It evaluates the individual unit, the condo complex as a whole, and the financial health of the homeowners association—all factors that affect your loan approval.

1099 Form: An IRS tax document reporting income other than wages—including freelance work, investment returns, and interest. Self-employed borrowers and independent contractors rely on 1099 forms as key income documentation for mortgage applications.

A

Abstract of Title: A condensed history of all recorded documents affecting ownership of a specific property. Think of it as the property’s biography—showing every sale, mortgage, lien, and legal action from its origins to the present day.

Acceleration Clause: A provision in your mortgage that allows the lender to demand full repayment of the remaining balance under certain conditions, such as defaulting on payments or selling the property without lender approval.

Adjustable-Rate Mortgage (ARM): A mortgage with an interest rate that can change periodically based on market conditions. ARMs typically start with a lower rate than fixed-rate loans, then adjust at predetermined intervals. Common structures include 5/1 and 7/1 ARMs, where the first number is the fixed period in years.

Amortization: The process of paying off your mortgage through regular monthly payments over time. Each payment covers both interest (the cost of borrowing) and principal (the actual loan balance). Early payments are mostly interest, but over time, more of each payment goes toward principal.

Amortization Schedule: A detailed table showing every payment you’ll make over your loan’s lifetime. It breaks down exactly how much of each payment goes to principal versus interest, and shows your remaining balance after each payment.

Annual Percentage Rate (APR): The true yearly cost of your mortgage expressed as a percentage. Unlike the interest rate alone, APR includes additional costs like origination fees and discount points, giving you a more complete picture of what you’ll pay. Use APR to compare loan offers from different lenders.

Applicant: Anyone who submits a mortgage application. If you’re applying with a spouse or partner, you’re both considered applicants (or co-borrowers), and both of your financial profiles will be evaluated.

Application: The formal document you complete to request a mortgage loan. Your application collects information about your income, employment, assets, debts, and the property you want to buy. This is the first major step in the loan process.

Application Fee: A charge some lenders require when you submit your mortgage application to cover initial processing costs. At 21st Century Lending, we’re transparent about all fees upfront so you know exactly what to expect.

Appraisal: A professional assessment of a property’s market value conducted by a licensed appraiser. Your lender orders an appraisal to confirm the home is worth at least as much as the loan amount. The appraisal protects both you and the lender from overpaying.

Appraised Value: The dollar amount an appraiser determines a property is worth based on its condition, features, and recent sales of comparable homes in the area. If the appraised value comes in lower than your purchase price, you may need to renegotiate or make a larger down payment.

Appraiser: A licensed professional trained to evaluate real estate and determine its market value. Appraisers are independent third parties—they don’t work for the buyer, seller, or lender—which helps ensure an unbiased assessment.

Appreciation: An increase in your home’s value over time. Appreciation can result from improvements you make, rising property values in your neighborhood, or general inflation. Building equity through appreciation is one of the key financial benefits of homeownership.

Approval Letter: A document from your lender confirming you’ve been approved for a mortgage at specific terms. Also called a commitment letter, this document shows sellers you’re a serious, qualified buyer.

Arm’s-Length Transaction: A real estate deal between unrelated parties where neither side has special influence over the other. Lenders prefer arm’s-length transactions because they’re more likely to reflect true market value.

Assessed Value: The value assigned to your property by local tax authorities for calculating property taxes. Assessed value is often lower than market value and is determined using formulas set by your municipality.

Assessment: A charge levied by a local government or homeowners association for specific improvements or services—things like new sidewalks, street lighting, or community amenities. Assessments are separate from regular property taxes.

Assets: Everything of value you own that can be converted to cash. For mortgage purposes, this includes bank accounts, investment accounts, retirement funds, vehicles, and other property. Lenders review your assets to confirm you have funds for the down payment, closing costs, and reserves.

Assumable Mortgage: A loan that can be transferred from the seller to the buyer, keeping the original interest rate and terms intact. Most conventional loans aren’t assumable, but many FHA and VA loans are—which can be valuable when current rates are higher than the existing loan’s rate.

Attorney Fee: A charge for legal services related to your real estate transaction. Depending on your state, an attorney may review your purchase contract, conduct the title search, or oversee your closing.

Automated Underwriting System (AUS): Computer software that analyzes your loan application and quickly determines whether you meet approval guidelines. Systems like Fannie Mae’s Desktop Underwriter or Freddie Mac’s Loan Product Advisor can deliver preliminary decisions in minutes, speeding up the loan process.

B

Balloon Mortgage: A loan with smaller payments for a set period followed by one large “balloon” payment that pays off the remaining balance. These loans can offer lower initial payments but require careful planning—you’ll need to refinance, sell, or pay the balloon when it comes due.

Balloon Payment: The large final payment due at the end of a balloon mortgage. This single payment covers the entire remaining loan balance and can be substantial.

Bank Statement Loan: A mortgage option for self-employed borrowers who may not have traditional income documentation like W-2s. Instead of tax returns, lenders review 12-24 months of bank statements to verify income based on actual deposits.

Basis Point: One-hundredth of one percent (0.01%). Mortgage rates are often discussed in basis points—so when rates move “25 basis points,” that means a 0.25% change.

Bi-Weekly Payment: A payment schedule where you make half your monthly mortgage payment every two weeks. This results in 26 half-payments (13 full payments) per year instead of 12, helping you pay off your loan faster and save on interest.

Bridge Loan: Short-term financing that helps you purchase a new home before selling your current one. Bridge loans “bridge” the gap between buying and selling, though they typically carry higher interest rates.

Broker: See Mortgage Broker.

Buydown: A financing arrangement where discount points are paid upfront to reduce the interest rate, either permanently or temporarily. A temporary buydown (like a 2-1 buydown) lowers the rate for the first one or two years before it adjusts to the permanent rate.

C

Cap: See Interest Rate Cap.

Cash Reserves: Liquid assets remaining after your down payment and closing costs. Lenders often require reserves equal to two or more months of mortgage payments to ensure you can handle unexpected expenses.

Cash-Out Refinance: Replacing your current mortgage with a larger one and receiving the difference in cash. Homeowners use cash-out refinancing to access home equity for renovations, debt consolidation, or other major expenses.

Certificate of Eligibility (COE): A document from the Department of Veterans Affairs confirming a veteran’s or service member’s eligibility for VA loan benefits. Your lender can often obtain this electronically.

Certificate of Occupancy: A document from local government confirming a property meets building codes and is safe to inhabit. Required for new construction and sometimes for major renovations.

Clear to Close: The final approval status meaning all loan conditions have been satisfied and you’re ready to sign closing documents. Hearing “clear to close” from your lender is one of the most exciting moments in the homebuying process.

Closing: The final step in your home purchase where you sign all legal documents, transfer funds, and receive the keys. Also called settlement, closing typically takes 1-2 hours.

Closing Costs: Fees and expenses paid at closing beyond your down payment. These typically range from 2-5% of the loan amount and include items like origination fees, title insurance, appraisal fees, and prepaid taxes and insurance.

Closing Disclosure (CD): A five-page form detailing your final loan terms and closing costs. You’ll receive this at least three business days before closing, giving you time to review and compare it to your original Loan Estimate.

Cloud on Title: Any claim, lien, or encumbrance that could affect property ownership. Clouds on title must be resolved before a sale can close.

Co-Borrower: A person who applies for a mortgage jointly with the primary borrower and shares equal responsibility for repayment. Co-borrowers’ income and assets are considered in the qualification process.

Co-Signer: Someone who agrees to repay a loan if the primary borrower defaults. Unlike co-borrowers, co-signers typically don’t have ownership rights to the property.

Collateral: Property or assets pledged as security for a loan. In a mortgage, the home itself serves as collateral—if you default, the lender can claim the property.

Comparable Sales (Comps): Recent sales of similar properties in the same area, used by appraisers to determine a home’s market value. Comps typically include homes sold within the past 6 months that are similar in size, age, and condition.

Condition: A requirement that must be met before your loan can close. Conditions might include providing additional documentation, obtaining insurance, or resolving title issues.

Conditional Approval: Mortgage approval contingent on meeting specific conditions. Your loan is essentially approved, but you need to satisfy remaining requirements before closing.

Conforming Loan: A mortgage that meets the size limits and guidelines set by Fannie Mae and Freddie Mac. Conforming loans typically offer the most competitive rates because they can be sold on the secondary market.

Contingency: A condition in a purchase contract that must be met for the sale to proceed. Common contingencies include financing, appraisal, and inspection contingencies.

Conventional Loan: A mortgage not insured or guaranteed by any government agency. Conventional loans are backed by private lenders and typically require higher credit scores and larger down payments than government loans, though they offer flexibility in terms and fewer restrictions.

Conversion Clause: A provision in some ARMs allowing you to convert to a fixed-rate mortgage during a specified period. This can protect you if rates rise significantly.

Conveyance: The legal transfer of property ownership from one party to another, typically accomplished through a deed.

Credit Report: A detailed record of your borrowing history compiled by credit bureaus. It includes your payment history, outstanding debts, length of credit history, and public records like bankruptcies.

Credit Score: A three-digit number summarizing your creditworthiness based on your credit history. Mortgage lenders primarily use FICO scores, which range from 300-850. Higher scores generally qualify for better rates and terms.

D

Debt-to-Income Ratio (DTI): The percentage of your gross monthly income that goes toward debt payments. Lenders use DTI to assess your ability to manage monthly payments. Most mortgage programs prefer a DTI below 43%, though some allow higher ratios with compensating factors.

Deed: The legal document transferring property ownership from seller to buyer. The deed is recorded with the county and serves as your proof of ownership.

Deed of Trust: A document used in many states instead of a traditional mortgage, involving three parties: borrower, lender, and a neutral trustee who holds the title until the loan is paid off.

Default: Failure to meet the terms of your mortgage agreement, most commonly by missing payments. Default can lead to foreclosure if not resolved.

Delinquent: A mortgage payment that is past due. Delinquency is typically reported to credit bureaus once a payment is 30 or more days late.

Depreciation: A decrease in property value over time, which can result from market conditions, physical deterioration, or changes in the surrounding area. The opposite of appreciation.

Discount Points: Upfront fees paid to the lender at closing in exchange for a lower interest rate. One point equals 1% of the loan amount. Paying points makes sense if you plan to keep the loan long enough to recoup the upfront cost through lower monthly payments.

Down Payment: The portion of the purchase price you pay upfront, with the remainder covered by your mortgage. Down payment requirements range from 0% (VA and USDA loans) to 3% (some conventional) to 3.5% (FHA) or more.

Due-on-Sale Clause: A provision allowing the lender to demand full repayment when the property is sold or transferred. This clause prevents buyers from assuming a loan without lender approval.

E

Earnest Money: A deposit made when your offer is accepted, showing the seller you’re serious about purchasing. Earnest money is typically 1-3% of the purchase price and is held in escrow until closing, when it’s applied to your down payment or closing costs.

Encumbrance: Any claim, lien, or restriction on a property that may affect its use or transferability. Mortgages, easements, and HOA rules are all encumbrances.

Equity: The difference between your home’s market value and what you owe on your mortgage. Equity builds as you make payments and as your home appreciates. It’s one of the primary wealth-building advantages of homeownership.

Escrow: A neutral third-party arrangement where funds or documents are held until all conditions of a transaction are met. In home purchases, escrow holds your earnest money until closing. For ongoing mortgages, escrow accounts collect and pay property taxes and insurance.

Escrow Account: An account managed by your loan servicer to pay property taxes and homeowners insurance on your behalf. A portion of each mortgage payment goes into escrow, and the servicer makes payments when they’re due.

Escrow Analysis: An annual review of your escrow account to ensure collected amounts match anticipated expenses. If taxes or insurance costs change, your escrow payment may be adjusted up or down.

Escrow Disbursement: Payment made from your escrow account to cover property taxes, homeowners insurance, or other escrowed items. Your servicer handles these payments so you don’t have to track due dates.

F

Fair Housing Act: Federal law prohibiting discrimination in housing transactions based on race, color, national origin, religion, sex, familial status, or disability. Everyone deserves equal access to housing opportunities.

Fair Market Value: The price a willing buyer would pay and a willing seller would accept in an open market, with both parties having reasonable knowledge of relevant facts. Appraisals estimate fair market value.

Fannie Mae (Federal National Mortgage Association): A government-sponsored enterprise that purchases mortgages from lenders, providing liquidity to the housing market. When your loan meets Fannie Mae guidelines, lenders can sell it, freeing up capital to make more loans.

Federal Housing Administration (FHA): A government agency within HUD that insures mortgages made by approved lenders. FHA insurance allows lenders to offer loans with lower down payments and more flexible credit requirements.

FHA Loan: A mortgage insured by the Federal Housing Administration, designed to make homeownership accessible to more borrowers. FHA loans allow down payments as low as 3.5% and accept lower credit scores than many conventional loans.

FICO Score: A credit score developed by the Fair Isaac Corporation, widely used by mortgage lenders. FICO scores range from 300-850, with higher scores indicating better creditworthiness.

First Adjusted Payment: The first monthly payment after an adjustable-rate mortgage’s initial fixed period ends and the rate adjusts. This payment may be higher or lower than previous payments depending on market conditions.

First Mortgage: The primary loan secured by a property, which takes priority over any other liens. In foreclosure, the first mortgage is paid before any secondary loans like home equity lines.

Fixed Interest Rate: An interest rate that remains constant throughout the entire loan term. With a fixed rate, your principal and interest payment never changes, providing predictable budgeting.

Fixed-Rate Mortgage: A home loan with an interest rate that stays the same for the full loan term. Whether you choose 15, 20, or 30 years, your rate and principal/interest payment remain stable.

Floating Interest Rate: An interest rate that can change before you lock it in. While your application is processing, rates may float up or down with market conditions until you decide to lock.

Flood Certification: A document indicating whether a property is located in a federally designated flood zone. If it is, you’ll likely need flood insurance, which is separate from standard homeowners insurance.

Forbearance: A temporary agreement with your lender to pause or reduce mortgage payments during financial hardship. Forbearance isn’t forgiveness—you’ll need to repay missed amounts—but it can help you avoid foreclosure during difficult times.

Foreclosure: The legal process through which a lender takes possession of a property when the borrower fails to make payments. Foreclosure severely damages credit and should be avoided through early communication with your lender if you’re struggling.

Freddie Mac (Federal Home Loan Mortgage Corporation): A government-sponsored enterprise that purchases mortgages from lenders, similar to Fannie Mae. Together, these entities provide stability and liquidity to the mortgage market.

G

Gift Letter: A signed statement confirming that money given to you for your down payment or closing costs is a genuine gift with no expectation of repayment. Lenders require gift letters to ensure the funds don’t create hidden debt.

Ginnie Mae (Government National Mortgage Association): A government corporation that guarantees mortgage-backed securities composed of FHA, VA, and USDA loans. Ginnie Mae’s backing attracts investors, keeping rates competitive for government-insured loans.

Good Faith Estimate: A disclosure form used before 2015 that estimated closing costs. This has been replaced by the Loan Estimate, which provides clearer, more standardized cost information.

Gross Income: Your total income before taxes and deductions. Lenders use gross monthly income when calculating your debt-to-income ratio for mortgage qualification.

H

Hard Credit Pull: A credit inquiry that appears on your credit report and may temporarily lower your score by a few points. Mortgage applications require hard pulls, but multiple mortgage inquiries within a 14-45 day window typically count as a single inquiry.

Hazard Insurance: Insurance protecting your home against damage from fire, storms, theft, and other covered perils. Lenders require hazard insurance (typically part of your homeowners policy) to protect their investment in your property.

High-Ratio Loan: A mortgage with a loan-to-value ratio above 80%, meaning your down payment is less than 20%. High-ratio loans typically require mortgage insurance.

Home Equity Line of Credit (HELOC): A revolving credit line secured by your home equity. Similar to a credit card, you can borrow, repay, and borrow again up to your limit during the draw period.

Home Equity Loan: A lump-sum loan secured by your home equity, typically with a fixed interest rate. Unlike a HELOC, you receive all funds at once and repay in fixed monthly installments.

Home Inspection: A thorough examination of a property’s physical condition by a qualified inspector. Inspections cover the structure, systems (electrical, plumbing, HVAC), roof, foundation, and more. While not required by lenders, inspections protect you from buying a home with hidden problems.

Homeowners Association (HOA): An organization that manages a residential community and enforces its rules. HOA fees cover shared amenities and maintenance. These monthly or annual dues are factored into your mortgage qualification.

Homeowners Insurance: Insurance protecting your home and belongings against damage, theft, and liability. Your lender requires homeowners insurance for the duration of your loan.

Housing Expense Ratio: Your total monthly housing costs (mortgage payment, taxes, insurance, HOA fees) divided by your gross monthly income. Also called the front-end ratio, most lenders want this below 28-31%.

I

Impound Account: See Escrow Account.

Index: A benchmark interest rate used to calculate adjustments on variable-rate loans. Common indexes include the Secured Overnight Financing Rate (SOFR). Your ARM rate equals the index plus a margin set by your lender.

Intent to Proceed: Your confirmation that you want to move forward with a specific lender after reviewing the Loan Estimate. Once you provide intent to proceed, the lender can collect most fees and continue processing your loan.

Interest: The cost of borrowing money, paid to the lender in addition to repaying the principal. Interest accrues daily and is typically paid monthly as part of your mortgage payment.

Interest Rate: The percentage charged for borrowing money, expressed as an annual rate. Your interest rate, combined with loan amount and term, determines your monthly payment and total cost of borrowing.

Interest Rate Cap: The maximum amount your rate can increase during any single adjustment period on an ARM. Caps protect you from dramatic payment increases if market rates spike.

Interest Rate Floor: The minimum interest rate that can be charged on an adjustable-rate loan, even if the index drops lower. Most ARMs have floors to protect lender returns.

Interest Rate Lock: A lender’s guarantee that your interest rate won’t change for a specified period while your loan is being processed. Rate locks typically last 30-60 days and protect you from market fluctuations.

Interest-Only Payments: Payments covering only the interest portion of a loan, without reducing principal. Some loans offer interest-only periods, resulting in lower initial payments but no equity building until principal payments begin.

Interim Interest: Interest charged from your closing date through the end of that month. This prepaid interest is typically collected at closing as part of your closing costs.

Investment Property: Real estate purchased to generate rental income or profit from appreciation, rather than as your residence. Investment property loans typically require larger down payments and have higher rates than primary residence loans.

J

Joint Tenancy: A form of property ownership where two or more people hold equal shares with rights of survivorship. When one joint tenant dies, their share automatically passes to the surviving owners.

Judgment: A court decision establishing that you owe money to a creditor. Judgments appear on your credit report and must typically be resolved before you can obtain a mortgage.

Jumbo Loan: A mortgage exceeding the conforming loan limits set by Fannie Mae and Freddie Mac. Because these loans can’t be sold to the GSEs, they often have stricter requirements and slightly higher rates.

L

Land Acquisition Loan: Financing for purchasing vacant land. These loans differ from traditional mortgages because undeveloped land presents more risk to lenders.

Late Charge: A fee assessed when your mortgage payment isn’t received by the end of the grace period. Most loans provide a 15-day grace period before late charges apply.

Lender-Paid Mortgage Insurance (LPMI): Mortgage insurance paid by the lender in exchange for a slightly higher interest rate. LPMI eliminates monthly MI payments and may be preferable if you plan to keep the loan long-term.

Liabilities: Your debts and financial obligations. Lenders review your liabilities to calculate debt-to-income ratios and assess your ability to take on mortgage payments.

Liability Coverage: Insurance protection against claims if someone is injured on your property or you damage others’ property. This coverage is included in standard homeowners insurance policies.

Lien: A legal claim against property as security for a debt. Your mortgage creates a lien, and other liens can result from unpaid taxes, contractor work, or court judgments.

Lifetime Cap: The maximum total increase allowed on an adjustable-rate mortgage over its entire term. A lifetime cap of 5% means your rate can never exceed 5 percentage points above the initial rate.

Line of Credit: A flexible loan allowing you to borrow up to a set limit, repay, and borrow again. Home equity lines of credit (HELOCs) are secured by your home.

Liquidity: How quickly an asset can be converted to cash. Savings accounts are highly liquid; real estate is not. Lenders prefer liquid assets for down payments and reserves.

Loan Estimate (LE): A standardized form providing details about your proposed mortgage within three business days of application. The LE shows your estimated interest rate, monthly payment, closing costs, and other key terms.

Loan Modification: A permanent change to your mortgage terms to make payments more manageable. Modifications may reduce your interest rate, extend your term, or add missed payments to your balance.

Loan Officer: A mortgage professional who guides you through the loan process from application to closing. Your loan officer helps you choose the right program, collects documentation, and keeps you informed every step of the way.

Loan Origination: The complete process of creating a new mortgage, from application through closing. Origination includes processing, underwriting, and funding your loan.

Loan Servicer: The company that manages your mortgage after closing—collecting payments, managing your escrow account, and handling customer service. Your servicer may or may not be the same company that originated your loan.

Loan-to-Value Ratio (LTV): The percentage of a property’s value that you’re borrowing. If you buy a $300,000 home with $60,000 down, your LTV is 80%. Lower LTVs typically mean better rates and no mortgage insurance requirement.

Lock Period: The duration of your interest rate lock, typically 30-60 days. If your loan doesn’t close within the lock period, you may need to extend or renegotiate your rate.

M

Margin: The fixed percentage added to an ARM’s index to determine your interest rate at each adjustment. For example, if the index is 3% and your margin is 2%, your rate would be 5%.

Market Value: The most probable price a property would sell for in a competitive, open market. Market value is influenced by location, condition, comparable sales, and current economic conditions.

Maturity Date: The date your mortgage must be fully repaid. For a 30-year loan originated in January 2025, the maturity date would be January 2055.

Mortgage: A loan used to purchase real estate, with the property serving as collateral. If you don’t repay as agreed, the lender can foreclose on the home.

Mortgage Banker: A company that originates, funds, and often services mortgage loans. Mortgage bankers use their own capital or borrowed funds to make loans.

Mortgage Broker: An independent professional who helps borrowers find suitable mortgage products from various lenders. Brokers don’t fund loans directly but connect you with lenders offering the best fit for your situation.

Mortgage Insurance (MI): Insurance protecting lenders against loss if a borrower defaults. Required when down payment is less than 20% on conventional loans, and on all FHA loans regardless of down payment.

Mortgage Loan Originator (MLO): A licensed professional who helps you complete your mortgage application and guides you through the loan process. Your loan officer is your primary contact throughout your home financing journey.

Mortgage Note: The legal document you sign promising to repay your loan. The note specifies the loan amount, interest rate, payment schedule, and consequences of default.

Mortgagee: The lender in a mortgage transaction—the party providing the loan and receiving payments.

Mortgagor: The borrower in a mortgage transaction—the party receiving the loan and making payments.

N

Nationwide Mortgage Licensing System (NMLS): The registration system for mortgage companies and loan originators. Every legitimate MLO has an NMLS number, which you can verify at nmlsconsumeraccess.org.

Negative Amortization: When your payments don’t cover all the interest due, causing your loan balance to increase rather than decrease. This risky loan feature is rare in today’s market.

Net Worth: Your total assets minus total liabilities. Net worth provides a snapshot of your overall financial health.

NMLS ID: A unique identification number assigned to mortgage professionals and companies. You can use this number to verify licensing and review complaint history.

Non-Conforming Loan: A mortgage that doesn’t meet Fannie Mae or Freddie Mac guidelines, either due to loan size (jumbo loans) or other factors. Non-conforming loans may have different requirements and rates.

O

Offer: Your formal proposal to purchase a property at a specified price and terms. Once the seller accepts, the offer becomes a binding purchase contract.

Origination Fee: A charge from your lender for processing and underwriting your mortgage. Origination fees typically range from 0.5% to 1% of the loan amount and are disclosed on your Loan Estimate.

Owner-Occupied: A property used as the borrower’s primary residence. Owner-occupied homes qualify for the best mortgage rates and terms compared to investment properties or second homes.

P

Partial Payment: A mortgage payment that is less than the full amount due. Most servicers don’t apply partial payments until the full monthly amount is received.

Payment Cap: A limit on how much your monthly payment can increase at each adjustment on an ARM, regardless of how much the interest rate changes.

PITI: An acronym for Principal, Interest, Taxes, and Insurance—the four components that typically make up your total monthly mortgage payment.

Planned Unit Development (PUD): A type of community development combining individual home ownership with shared common areas maintained by a homeowners association.

Points: See Discount Points.

Power of Attorney: A legal document authorizing someone to act on your behalf. In real estate, this may allow someone to sign closing documents for you if you can’t attend.

Pre-Approval: A lender’s conditional commitment to lend, based on verification of your income, assets, and credit. Pre-approval shows sellers you’re a serious, qualified buyer.

Pre-Paids: Items paid at closing that cover future expenses, including prepaid interest, property taxes, and insurance premiums. Pre-paids establish your escrow account.

Pre-Payment Penalty: A fee some loans charge if you pay off the balance early. Most mortgages today don’t have prepayment penalties, but always confirm before signing.

Pre-Qualification: An informal estimate of how much you might be able to borrow, based on self-reported financial information. Pre-qualification is a useful first step but less powerful than pre-approval.

Preliminary Title Report: A document showing the current state of a property’s title, including ownership, liens, and encumbrances. This report helps identify issues to resolve before closing.

Primary Residence: Your main home where you live most of the year. Primary residences qualify for the best mortgage rates and terms.

Principal: The amount you borrow, excluding interest and fees. As you make payments, your principal balance decreases.

Principal Balance: The remaining amount you owe on your loan, not including future interest or fees.

Principal Payment: The portion of your monthly payment that reduces your loan balance. Early in your loan, most of your payment goes to interest; over time, more goes to principal.

Private Mortgage Insurance (PMI): Insurance required on conventional loans when your down payment is less than 20%. PMI protects the lender and can be canceled once you reach 20% equity.

Processing: The stage where your loan file is prepared for underwriting, including verification of your information and collection of required documents.

Property Tax: An annual tax charged by local governments based on your property’s assessed value. Property taxes fund schools, roads, and municipal services, and are typically paid through your escrow account.

Purchase Agreement: See Offer.

Q

Qualifying Ratios: The calculations lenders use to determine if you can afford a mortgage, primarily debt-to-income ratio and housing expense ratio.

Quitclaim Deed: A deed transferring whatever interest the grantor has in a property, without guaranteeing clear title. Quitclaim deeds are often used between family members or to clear title issues.

R

Rate and Term Refinance: Replacing your current mortgage with a new one to get a better interest rate or different loan term, without taking cash out. This is the most common type of refinance.

Rate Lock: See Interest Rate Lock.

Real Estate Settlement Procedures Act (RESPA): A federal law requiring lenders to provide borrowers with timely disclosures about the nature and costs of the real estate settlement process. RESPA also prohibits certain abusive practices.

Refinance: Replacing your existing mortgage with a new one, typically to secure a lower rate, change your loan term, switch from an ARM to a fixed rate, or access equity through cash-out.

Reserves: See Cash Reserves.

Reverse Mortgage: A loan available to homeowners 62 and older that converts home equity into cash without requiring monthly payments. The loan is repaid when the borrower sells, moves, or passes away.

S

Second Home: A property you occupy for part of the year that isn’t your primary residence. Second home loans have slightly different requirements than primary residence or investment property loans.

Second Mortgage: An additional loan taken out on a property that already has a first mortgage. Second mortgages include home equity loans and HELOCs.

Seller Concessions: Contributions from the seller toward the buyer’s closing costs, reducing out-of-pocket expenses. Concession limits vary by loan type.

Servicer: See Loan Servicer.

Settlement: See Closing.

Settlement Statement: See Closing Disclosure.

Short Sale: Selling a property for less than the amount owed on the mortgage, with the lender’s approval. Short sales are alternatives to foreclosure for borrowers who can no longer afford their payments.

Soft Credit Pull: A credit check that doesn’t affect your credit score. Soft pulls are often used for pre-qualification or promotional offers.

Streamline Refinance: A simplified refinance program available for FHA (FHA Streamline) and VA (VA IRRRL) loans with reduced documentation requirements. These programs are designed to make refinancing faster and easier.

Subordinate: Having a lower priority. A second mortgage is subordinate to the first mortgage in claims on the property.

Survey: A professional measurement and mapping of property boundaries. Surveys identify exactly where your property begins and ends and reveal potential issues like encroachments.

T

Tax Lien: A government claim against property for unpaid taxes. Tax liens must be satisfied before or at closing for clear title.

Term: The length of time over which your mortgage must be repaid. Common terms are 15, 20, and 30 years.

Title: Legal ownership of property. Having “clear title” means no liens or disputes cloud your ownership rights.

Title Insurance: Protection against financial loss from defects in title that weren’t discovered during the title search. Lenders require title insurance; owner’s policies are optional but recommended.

Title Insurance Company: A company that researches property titles, issues title insurance policies, and often conducts closings.

Title Insurance Policy: The actual insurance contract protecting against title defects. Lender’s policies protect the lender; owner’s policies protect you.

Title Search: Research into public records to confirm property ownership and identify any liens, encumbrances, or other issues affecting title.

Transfer Tax: A tax imposed when property ownership changes hands. Transfer taxes vary significantly by location.

Truth in Lending Act (TILA): Federal law requiring lenders to clearly disclose loan terms and costs, making it easier to compare offers from different lenders.

U

Underwriter: The professional who evaluates your loan application and documentation to make the final approval decision.

Underwriting: The process of analyzing your creditworthiness, income, assets, and the property to determine if the loan should be approved and under what terms.

Uniform Electronic Transactions Act (UETA): State laws recognizing electronic signatures and records as legally equivalent to paper documents, enabling online mortgage transactions.

Uniform Residential Loan Application (URLA): See 1003 Form.

Upfront Mortgage Insurance Premium (UFMIP): A one-time fee required for FHA loans, typically 1.75% of the loan amount. UFMIP can be paid at closing or rolled into your loan balance.

USDA Loan: A mortgage program backed by the U.S. Department of Agriculture for buyers in eligible rural and suburban areas. USDA loans offer 0% down payment and competitive rates for qualifying borrowers.

V

VA Funding Fee: A one-time fee charged on VA loans that helps fund the VA loan program. The amount varies based on down payment size and whether you’ve used VA benefits before. Some veterans are exempt.

VA Loan: A mortgage guaranteed by the U.S. Department of Veterans Affairs for eligible veterans, service members, and surviving spouses. VA loans offer 0% down payment, no PMI, and competitive rates.

W

W-2: The IRS form employers provide showing your annual wages and taxes withheld. Lenders request W-2s from the past two years to verify employment income.

Warranty Deed: A deed guaranteeing the seller holds clear title and has the right to sell the property. Most home sales use warranty deeds, providing buyers maximum protection.

Y

Yield Spread Premium (YSP): Historical compensation paid to brokers for originating loans at above-market rates. Post-2010 reforms changed how broker compensation works.

Z

Zoning Ordinance: Local laws dictating how property in specific areas can be used—residential, commercial, industrial, etc. Zoning affects what you can build or do on your property.