|Home Loan Glossary - Heartland Mortgage Terms
Adjustable-rate mortgage (ARM)
A mortgage with an interest rate that changes periodically based
on the changes in a specified index.
The date on which the interest rate changes for an adjustable-rate
The time between one rate change and the next, for an
adjustable rate mortgage (ARM). Typically the adjustment
period is 1, 3, 5 or 7 years.
The repayment of a mortgage loan by installments with
regular payments to cover the principal and interest.
The amount of time required to amortize the mortgage
loan. The amortization term is expressed as a number
of months. For example, for a 30-year fixed-rate mortgage,
the amortization term is 360 months.
Annual percentage rate (APR)
The cost of a mortgage stated as a yearly rate; includes
such items as interest, mortgage insurance, and loan
origination fees (points).
A form, commonly referred to as a 1003 form, used to
apply for a mortgage and to provide information regarding
a prospective borrower and the proposed security.
A written analysis of the estimated value of a property
prepared by a qualified appraiser.
A person qualified by education, training, and experience
to estimate the value of real property and personal
An increase in the value of a property due to changes
in market conditions or other causes.
Anything of monetary value that is owned by a person.
Assets include real property, personal property and
enforceable claims against others (including bank accounts,
stocks, mutual funds, etc.).
The transfer of a mortgage from one person to another.
A mortgage that can be taken over ("assumed")
by the buyer when a home is sold.
The transfer of the seller's existing mortgage to the
A provision that allows a buyer to assume, or take over,
the responsibility for the seller's (original borrower's)
mortgage. The loan does not need to be paid in full
by the original borrower upon sale or transfer of the
The lender's charge for paperwork involved in processing
records for a new buyer assuming an existing mortgage.
A financial statement that shows assets, liabilities
and net worth as of a specific date.
A mortgage that has level monthly payments that are
insufficient to fully amortize the principal and interest
within the term of the loan. With a balloon mortgage,
a lump sum payment ("Balloon Payment") is
due at maturity.
The final lump sum payment that is made at the maturity
date of a balloon mortgage.
A person, firm, or corporation that, through a court
proceeding, is relieved from the payment of all debts
after the surrender of all assets to a court-appointed
A proceeding in a federal court in which a debtor, who
owes more than his or her assets, can relieve the debts
by transferring his or her assets to a trustee.
Income before taxes are deducted.
The person designated to receive the income from a trust,
estate or a deed of trust.
A preliminary agreement, secured by the payment of an
earnest money deposit, under which a buyer offers to
purchase real estate.
Biweekly payment mortgage
A mortgage that requires payments every two weeks (instead
of the standard monthly payment schedule). The 26 (or
possibly 27) biweekly payments are each equal to one-half
of the monthly payment that would be required, and they
are usually drafted directly from the borrower's bank
account. The result for the borrower is a substantial
savings in interest.
The mortgage that is secured by a cooperative project,
as opposed to the share loans on individual units within
An interest-bearing certificate of debt with a maturity
date. An obligation of a government or business corporation.
A real estate bond is a written obligation usually secured
by a mortgage or a deed of trust.
A violation of any legal obligation.
A form of second trust that is collateralized by the
borrower's present home (which is usually for sale)
in a manner that allows the proceeds to be used for
closing on a new house before the present home is sold.
Also known as a "swing loan."
A person who, for a commission or a fee, brings parties
together and assists in negotiating contracts between
A temporary buydown is a mortgage on which an initial
lump sum payment is made to reduce a borrower's monthly
payments during the first few years of a mortgage. A
permanent buydown reduces the interest rate over the
entire life of a mortgage.
A provision in the mortgage agreement that gives the
lender the right to call, or request, the mortgage due
and payable at the end of a specified period, for any
A provision in an adjustable-rate mortgage (ARM) agreement that
limits how much the interest rate or mortgage payments
Any structure or component erected as a permanent improvement
to real property that adds to its value and useful life.
A refinance transaction in which the amount of money
received from the new loan exceeds the total of the
money needed to repay the existing first mortgage, closing
costs, points and the amount required to satisfy any
outstanding subordinate mortgage liens. In other words,
a refinance transaction in which the borrower receives
additional cash that can be used for any purpose.
Certificate of Eligibility
A document issued by the Department of Veterans Affairs
which states that a veteran is eligible for a long-term,
low or no down payment mortgage issued by the federal
government. See Department
of Veterans Affairs and Veterans
Affairs (VA) Loan.
Certificate of Reasonable Value (CRV)
A document issued by the Department of Veterans Affairs
(VA) that establishes the maximum value and loan amount
for a VA mortgage.
Certificate of title
A statement provided by an abstract company, title company
or attorney, stating that the title to real estate is
legally held by the current owner.
Chain of title
The chronological order of the title's transfer from
the original owner to the present owner.
The frequency (in months) of payment and/or interest
rate changes in an adjustable-rate mortgage (ARM).
A title that is free of liens or legal questions as
to ownership of the property.
Your closer is responsible for reviewing and
clearing your title work and any other legal documentation
applicable to your mortgage. Once your title is clear
and your underwriter has issued a clear to close, your
closer will arrange for a closing.
The meeting between the buyer, seller and lender in which
the property and funds legally change hands. Also called
Closing cost item
A fee that a homebuyer must pay at closing for a single
service, tax or product (ie. origination fees and attorney's
fees). Many closing cost items are included as numbered
items on the HUD-1 statement.
Expenses (over and above the price of the property)
incurred by buyers and sellers in transferring ownership
of a property. Closing costs consist of individual closing
cost items, such as an origination fee, an attorney's
fee, taxes, an amount placed in escrow and charges
for obtaining title insurance and a survey. Closing
costs will vary according to the geographical location
of the property and are usually between 2 and 6 percent
of the mortgage amount. For more detailed information, visit our closing costs page.
Also referred to as the HUD1, it is the final statement of
costs incurred to close on a loan or to purchase a home.
Cloud on title
Any conditions found during the title search that adversely
affect the title to real estate. Clouds on title usually
cannot be removed except by a quitclaim deed or court
A person who signs a promissory note (mortgage) along with the
borrower. A co-borrower's signature guarantees that the
loan will be repaid, because the borrower and the co-borrower
are equally responsible for the repayment. Also referred
to as a co-maker or co-signor.
An asset (such as a car or a home) that guarantees the
repayment of a loan. The borrower risks losing the asset
if the loan is not repaid according to the terms of
the loan contract.
The efforts used to make a delinquent mortgage current
and to file the notices needed to proceed with foreclosure.
The fee charged by a broker or agent for negotiating
a real estate or loan transaction. A commission is generally
a percentage of the price of the property or loan.
See Mortgage Commitment
Those portions of a building, land and amenities that
are owned (or managed) by a planned unit development
(PUD)/condominium project's homeowners association (or
a cooperative project's cooperative corporation) and
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,
Community Home Improvement Mortgage Loan
An alternative financing option that allows low to moderate
income homebuyers to obtain 95 percent financing for
the purchase and improvement of a home in need of modest
repairs. The repair work can account for as much as
30 percent of the appraised value.
Community property (return
In some western and southwestern states, a form of ownership
under which property acquired during a marriage is presumed
to be owned jointly unless acquired as separate property
of either spouse.
An abbreviation for "comparable properties."
Comparables are recently sold properties with traits
similar to those of the property being purchased, ie.
similar size, in a nearby location, with similar amenities.
These properties can be used as a base comparison to
help the appraiser determine the approximate fair market
value of the property being purchased.
A real estate project in which each unit owner has title
to a unit in a building, an undivided interest in the
common areas of the project and the exclusive use of
certain limited common areas.
The changing of a rental property (two or more units)
to the condominium form of ownership. Physical changes,
as well as paperwork, may be necessary to conform to
building and safety codes.
Conforming mortgage loan
Any loan that meets the criteria and limits set forth
by the largest buyers of loans, Fannie
A short-term, interim loan for financing the cost of
construction. The lender makes payments to the builder
at periodic intervals as the work progresses.
A condition that must be met before a contract is legally
binding. For example, homebuyers often include a contingency
that specifies that the contract is not binding until
they obtain a satisfactory home inspection report from
a qualified home inspector.
An agreement between two or more people, or entities,
that creates or modifies a legal commitment.
A mortgage that is not insured or guaranteed by the
federal government agency.
A provision in some adjustable-rate mortgage (ARM) agreements
that allows the borrower to change the ARM to a fixed-rate
mortgage at specified time frames after loan origination.
The borrower will likely pay a higher rate or more points
to have this option.
An adjustable-rate mortgage (ARM) that can be converted
to a fixed-rate mortgage under specified conditions.
An apartment building or a group of dwellings owned
by a corporation, the stockholders of which are the
residents of the dwellings. It is operated for their
benefit by their elected board of directors. In a cooperative,
the corporation or association owns title to the real
estate. A resident purchases stock in the corporation,
which entitles him to occupy a unit in the building
or property owned by the cooperative. While the resident
does not own his unit, he has an absolute right to occupy
his unit for as long as he owns the stock.
Arrangements under which an employer moves an employee
to another location as part of the employer's normal
course of business, or under which it transfers a substantial
part or all of its operations and employees to another
area because it is relocating its headquarters or expanding
its office capacity.
Cost of funds index (COFI)
An index that is used to determine interest rate changes
for certain adjustable-rate mortgage (ARM) plans. It
represents the weighted-average cost of savings, borrowings
and advances of the 11th District members of the Federal
Home Loan Bank of San Francisco.
A clause in a mortgage that obligates or restricts the
borrower and that, if violated, can result in foreclosure.
An agreement in which a borrower receives something
of value in exchange for a promise to repay the lender
at a later date.
An agency that keeps your credit record on file. See also
Credit Reporting Agency
A record of an individual's open and fully repaid debts.
A credit history helps a lender to determine whether
a potential borrower has a history of repaying debts
in a timely manner.
A credit officer has the authority to approve or decline
a loan. The credit
officer is "behind-the-scenes" and you will
not directly speak with him or her. Instead, the credit
officer uses the documentation that your underwriter
collects from you and decides whether or not your loan
is approved. See also Underwriting
A report of an individual's credit history prepared
by a credit bureau, reporting agency or repository and
used by a lender in determining a loan applicant's credit
Credit reporting agency
Company that collects information from several credit
repositories, merges all the information and reports
it in one form - merged credit report.
An organization that gathers, records, updates and stores
financial information on an individual's credit history
and reports it in one form - in-file credit report.
An amount owed to another.
The legal document conveying title to a property.
A deed given by a borrower to the lender to avoid foreclosure
Deed of trust
The document used in some states, instead of a mortgage,
to secure the repayment of money borrowed.
Failure to repay a loan on a timely basis or otherwise
meet the terms of a commitment or agreement.
Failure to make payments on time. This can lead to foreclosure.
Department of Veteran's Affairs
An independent agency of the federal government
that guarantees long-term, low or no down payment
mortgages to eligible veterans.
Money given in advance to show intention to complete
the purchase of a property. See also Good Faith Deposit.
A decline in the value of property due to wear and tear,
adverse changes in a neighborhood, or any other reason.
Information that must be given to consumers about their
A list of documents that you will be required to provide
when submitting a loan application. See our Required
The part of the purchase price of a property that the
buyer pays, usually in cash, and is not included in
the loan amount. The difference between the cost
of the property and the loan amount.
A provision in a mortgage, or deed of trust, that allows
the lender to demand immediate repayment of the mortgage
balance if the borrower sells the property.
Earnest Money Deposit
Refers to a third neutral party who carries out the
instructions of both the buyer and the seller to handle
all closing paperwork. May also refer to an account
held by the lender into which the homebuyer makes tax
and/or insurance payments.
Federal Home Loan Mortgage
Corporation (FHLMC or Freddie Mac)
A quasi-governmental agency that purchases conventional
mortgages from insured depository institutions and HUD-approved
Federal Housing Administration (FHA)
A division of the Department of Housing and Urban Development.
Its main activity is the insuring of residential mortgage
loans made by private lenders. FHA also sets standards
for underwriting mortgages.
A loan insured by the Federal Housing Administration
that is open to all qualified home purchasers. Although there are
limits to the size of FHA loans, they are generous enough
to handle moderate-priced homes almost anywhere in the
FHA Mortgage Insurance
Requires a small fee (up to 3 percent of the loan amount)
paid at closing or a portion of this fee added to each
monthly payment of an FHA loan to insure the loan with
FHA. In addition, FHA mortgage insurance requires an
annual fee of 0.5 percent of the current loan amount.
Federal National Mortgage Association
A tax-paying corporation, created by Congress, that purchases
and sells conventional residential mortgages as well
as those insured by FHA or guaranteed by VA. This institution
makes mortgage money more available and more affordable.
Fixed Rate Loan
A loan with the same interest rate and monthly payment
over the life of the loan.
The float period refers to the time between when you
accept a loan and when you lock-in your rate. During
this time the interest rate and points on your loan
will fluctuate with the market until you lock.
A legal proceeding in which the default borrower is
extinguished of all rights, title and interest on the
Good Faith Deposit
A sum of money given to demonstrate intention to complete
the purchase. With regard to mortgages, it is the sum
of money given to demonstrate intention to complete
the loan, a show of good faith.
Good Faith Estimate
An estimate of charges that a borrower is likely to
incur in connection with a settlement.
Home Equity Loan
Sometimes referred to as a second mortgage or borrowing
against your home. The loan allows you to tap into your
home's built-up equity, which is the difference between
the amount your home could be sold for, and the amount
that you still owe. Homeowners often use a home-equity
loan for home improvements, to pay for a new car, or
to finance their child's college education. A home-equity
loan is a good way to borrow money for two main reasons:
1.) the interest rate is usually one of the lowest loan
rates a borrower can get and 2.) the interest you pay
on the loan is usually tax-deductible. But taking out
a home-equity loan also means the lender can take possession
of the home if the loan isn't repaid.
U.S. Department of Housing and Urban Development
Office of Housing/Federal Housing Administration within
HUD insures home mortgage loans made by lenders and
sets minimum standards for such homes.
A published interest rate against which lenders measure
the difference between the current interest rate on
an adjustable-rate mortgage and that earned by other
investments (such as U.S. Treasury Security yields,
the monthly average interest rate on loans closed by
savings and loan institutions and the monthly average
Costs-of-Funds incurred by savings and loans), which
is then used to adjust the interest rate on an adjustable-rate mortgage.
A charge paid for borrowing money. Interest is usually
expressed as a percentage of the amount borrowed, or
The annual rate of interest on the loan, expressed as
a percentage of 100.
A loan that is larger than the limits set by the Federal
National Mortgage Association and the Federal Home Loan
Mortgage Corporation. Because jumbo loans cannot be
funded by these two agencies, they usually carry a higher
Any licensed person or entity advancing funds that are
to be repaid. Also known as a mortgagee.
A claim upon a piece of property for the payment or
satisfaction of a debt or obligation.
Cash or assets that can be immediately converted to
The amount of debt, not including interest.
Your loan officer is your personal guide throughout
the mortgage process. He or she will help you to identify
your needs, select a loan program, complete the application
process, offer advice and answer any questions you may
The relationship between the amount of the mortgage
loan and the appraisal value of the property, expressed
as a percentage.
A lock period refers to the amount of time prior to
closing that you can secure an interest rate for your
loan. Generally, lock periods range from 30 days to
over 90 days.
The amount a lender adds to the index on an ARM to establish
the adjusted interest rate.
The highest price that a buyer would pay and the lowest
price a seller would accept on a property. Market value
may be different from the price a property could actually
be sold for at a given time.
A title that is free and clear of objectionable liens,
clouds or other title defects. A title that enables
an owner to sell his property freely to others and that
others will accept without objection.
Minimum Down Payment
Minimum down payment is the amount of money you are
required to put down at closing. If the minimum is 10%,
you must make a down payment of at least $10,000 on
a $100,000 house.
The amount paid each month towards the principal and
interest amount of a loan. The monthly payment may or
may not include taxes and insurance.
A loan for a house. Also referred to as a lien or claim
against real property.
A person, or entity, that specializes in loan originations
and receives a commission for matching borrowers with
lenders. The mortgage broker performs some or most of
the loan processing functions such as taking loan applications,
ordering credit reports, appraisals and title reports.
Typically, the mortgage broker does not underwrite the
loan and generally does not use its own funds for closing.
Mortgage Commitment Letter
A formal offer from a bank, or other lending institution,
which states the terms under which it agrees to advance
mortgage funds to a homebuyer.
Money paid to insure the mortgage when the down payment
is less than 20 percent.
Mortgage Insurance Premium
The payment made by a borrower to the lender for transmittal
to HUD. These payments help defray the cost of the FHA
mortgage insurance program and provide a reserve fund
to protect lenders against loss in insured mortgage
transactions. In FHA insured mortgages, this represents
an annual rate of one-half of 1 percent paid by the
borrower on a monthly basis.
Occurs when your monthly payments are not large enough
to pay all the interest due on the loan. This unpaid
interest is added to the unpaid balance of the loan.
The danger of negative amortization is that the buyer
ends up owing more than the original amount of the loan.
No Documentation Mortgage
A no-documentation, or "no-doc", mortgage
is a specialty loan product that generally requires
a down payment of at least 5% to 30% of the
home purchase price. No-doc mortgages are generally
a wise choice for self-employed people, those who do
not wish to verify their income and those with a brief
or blemished credit history, or no credit at all. The
benefits of a no-doc mortgage include a shorter application
process, since you are not required to provide income,
employment or asset documentation, as well as a streamlined
approval, because there is little subsequent verification.
However, no-doc mortgages generally will be at slightly
higher interest rates.
A conventional home mortgage that does not meet the
criteria of Fannie Mae or Freddie Mac for various reasons
including loan amount, loan characteristics or underwriting
guidelines. Non-conforming loans usually incur a higher
rate and/or points.
The fee charged by a lender to prepare loan documents,
make credit checks, inspect and sometimes appraise a
property; usually computed as a percentage of face value
of the loan.
An alternative to private mortgage insurance, also known
as a second trust loan. The most common type is an 80/10/10
where a first mortgage is taken out for 80% of the home's
value, a down payment of 10% is made and another 10%
is financed in a second trust at a higher interest rate.
In some cases, you may even qualify for a piggyback
loan with as little as a 5% down payment.
Principal, interest, taxes and insurance. Also called
monthly housing expense.
The amount of prepaid interest you will be assessed
at closing. Each point is equal to 1 percent of the
loan amount (i.e. two points on a $100,000 mortgage
would cost $2,000).
A privilege in a mortgage permitting the borrower to
make payments in advance of their due date. Allows the
borrower to pay the loan off sooner and save on interest.
Not all mortgage agreements allow for prepayment, and
some lenders will charge a fee for early repayment of
debt, see Prepayment
Money charged for early repayment of debt if the original
mortgage commitment does not allow for prepayment. Prepayment
premiums are allowed in some form (but not necessarily
imposed) in 36 states and the District of Columbia.
The amount of debt, not counting interest, left on a
Private Mortgage Insurance (PMI)
In the event that a borrower does not have at least
a 20% down payment lenders will allow a smaller down
payment - sometimes as low as 5%. With these loans,
borrowers are required to carry private mortgage insurance.
PMI usually requires an initial premium payment, and
may require an additional monthly fee, depending on
your loan structure.
Processing is the steps a lender takes to gather borrower
information for underwriting. Processing includes getting
the credit report, appraisal, verification of employment,
Qualification is the initial process to verify that
a borrower has enough cash and sufficient income to
purchase a home. Qualification is not an approval because
it does not include a credit check. Qualified borrowers
can be turned down if they have poor credit history.
In lending, the amount of interest on the loan expressed
as an interest rate or annual percentage rate (APR)
of the principal.
These options are all the combinations of interest rate
and points that are offered on a particular loan. Usually,
paying more points lowers interest rates.
Real Estate Broker
A middleman or agent who buys and sells real estate
for a company, firm, or individual on a commission basis.
The broker does not have title to the property but
generally represents the owner.
A real estate broker or an associate holding active
membership in a local real estate board affiliated with
the National Association of Realtors.
To cancel a contract. With respect to mortgage refinancing,
the law that gives the homeowner three days to cancel
a contract once it is signed if the transaction uses
equity in the home as security.
Money paid to the lender for recording a home sale with
the local authorities, thereby making it part of the
The process of the same borrower paying off one loan
with the proceeds from another loan.
The Real Estate Settlement Procedures Act is a federal
law that allows consumers to review information on known
or estimated settlement costs once after application
and once prior to or at settlement. The law requires
lenders to furnish information after application only.
The life of the loan. The period of time between the
beginning loan date on the legal documents and the date
the entire balance of the loan is due.
A document that gives evidence of an individual's ownership
A policy, usually issued by a title insurance company,
which insures a homebuyer against errors in the title
search. The cost of the policy is usually a percentage
of the value of the property, and is often purchased
by the buyer and/or seller.
An examination of municipal records to determine the
legal ownership of property. Usually is performed by
a title company.
A federal law requiring disclosure of the Annual Percentage
Rate, finance charge and several other pieces of information related to the loan. This disclosure
allows you to compare the total cost of a loan from lender to lender. The disclosure is provided shortly after an application is received and again at closing.
The analysis of risk involved in granting a mortgage
loan to a particular borrower and the process by which
a lender determines whether the risk is acceptable.
Underwriting involves the evaluation of the property
as outlined in the appraisal report, and of the borrower's
ability and willingness to repay the loan.
is the liaison between you and the credit officer. The
underwriter is responsible for reviewing and verifying
all your documents and information and submitting it to a
Veteran Affairs (VA) Loan
A mortgage loan made by an approved lender and guaranteed
by the Department of Veterans Affairs. All veterans,
and those currently serving in the military, are eligible
for a VA loan, which is commonly characterized by a
lower down payment than other types of loans.