Glossary

The mortgage world has a whole language of its own. If you don't already speak mortgagese, here are the translations of many common terms.
A

Amortization

"Amortization" is the spreading out of the repayment of your loan over time. The amount of time over which your payments are spread is the loan "Term". At the beginning of the loan term, most of your monthly payment goes toward paying the interest. With each subsequent payment, the percentage of your monthly payment going toward the principal will increase. An amortization schedule will show you each projected payment over the term of the loan and what percentage of each payment will go toward principal and interest.

Appraisal

The determination of the value of real estate property by a licensed/certified professional appraiser.

APR

An annual percentage rate, or "APR" is a measure of the cost to you of getting and paying a mortgage. The APR reflects not only the interest rate but also the discount points and other charges that you have to pay to get your loan. That is why your APR is nearly always higher than your interest rate.

ARM

An adjustable rate mortgage, or "ARM" is a loan with an interest rate that changes. ARMs usually start with lower monthly payments than fixed-rate loans, so they can make financial sense. However, there are a few things to keep in mind. The payments can change. They can go up, sometimes by a lot, even if interest rates don’t go up. Payments can go down, but may not do so by much, or at all, even if interest rates go down. You could end up owing more money than you borrowed, even if you make all your payments on time. If you want to pay off your ARM early to avoid higher payments, you might pay a penalty.
C

Closing Agent

"Closing Agent", "Title Agent", and "Escrow Officer" are all terms referring to the individual at the Title company who will take you through the closing documents required to finalize your loan. They will make sure you sign all the necessary documents and will also facilitate recording the needed documents with the County in which your property is located.

Closing Disclosure

The Closing Disclosure (CD) is a 5-page form that provides final details about the loan you have selected. It includes the loan terms, your projected monthly payments, and how much you will pay in closing costs.

Closing/Funding

Closing your loan refers to the last step in acquiring your mortgage. It is when you and all other required parties, sign all the necessary documentation to finish the transaction. This event usually takes place at a Title/Escrow company. Within a short period of time after closing (how long depends on what type of loan you are doing) funds are wired from the lender to the escrow company. When the loan funding clears and the title company records it with the county, the loan transaction/home sale is considered closed and finalized.

CLTV

“CLTV” or combined loan-to-value is for when more than one loan is attached to your home. The CLTV for a purchase transaction is calculated by adding the values of the first and second loans, and then dividing the total by the lower of the appraised value of your home or the purchase price.

Co-Borrower

A co-borrower is an individual whose name appears on loan documents along with yours, and who is likewise responsible to repay the mortgage. Their income and assets, may help qualify for a mortgage loan with better rates. The most typical co-borrower would be a spouse.

Comparable

In preparing your appraisal report and assessing the appraised value of your home, the appraiser will look at “comparable” sales, or “comps”. These are recent sales of nearby homes that are similar, or comparable, to your home.

Conforming

One of the key guidelines set forth by Fannie Mae and Freddie Mac are “conforming” loan limits. These limits can vary by county. A loan for an amount at or below these limits are generally considered “conforming”. A loan amount above these limits is “non-conforming” and may also referred to as a “jumbo” loan. There are some other factors that can make a loan non-conforming with Fannie/Freddie guidelines, but the “conforming” label typically refers to whether your loan falls within the prescribed loan limits.

Conventional

A conventional mortgage is a loan that is not insured or guaranteed by a government entity like FHA, VA, or USDA. These loans adhere to guidelines set by Fannie Mae and/or Freddie Mac.

Co-Signer

A co-signer is also someone who is responsible to repay the loan in the event that the primary borrower and/or co-borrower cannot or do not make their mortgage payments. The co-signer’s income, assets and credit worthiness are taken into account to help qualify you for a mortgage. Unlike the co-borrower, the co-signer’s name is not on the loan documents with your name.
D

Debt Ratios

Your debt-to-income ratios, also called “debt ratios”, or “DTI” are determined by dividing your debt payment(s) by your gross monthly income. Your “top” or “front-end” ratio uses just your monthly mortgage debt payment. Your “bottom” or “back-end” ratio uses your total monthly debt payments, including your mortgage payment.

Deed of Trust

The deed of trust is one of the key documents you will sign at closing. It is the legal document that pledges the property as security for the loan you are acquiring.

Discount Points

Discount points are charges that you pay up front on your mortgage to get a "discount" in your interest rate. One "point" is equal to 1% of your loan amount, so on a $250,000 mortgage, one discount point would be $2,500. There are basically two considerations in determining whether paying discount points is worth it for you. First, discount points are tax-deductible. Second, paying the discount points gets you a lower interest rate. So, if the interest savings over the life of the loan coupled with the tax savings in the year you pay the discount points is greater than the points paid, it could make financial sense.
E

ECOA

The Equal Credit Opportunity Act was passed with the objective to enable “Fair Lending” by protect consumers by prohibiting unfair and discriminatory practices.

Equity

The difference between the fair market value of your home and the outstanding balance of all loans against the property. So, if your home appraises for $250,000 and you still owe $200,000 on it, you have $50,000 in equity.

Escrow Officer

"Closing Agent", "Title Agent", and "Escrow Officer" are all terms referring to the individual at the Title company who will take you through the closing documents required to finalize your loan. They will make sure you sign all the necessary documents and will also facilitate recording the needed documents with the County in which your property is located.

Escrows

This term refers to funds used for paying annual expenses associated with your mortgage, like property taxes and insurance premiums, which are held in an escrow account. When you close your loan, part of your closing costs will be funding your escrow account such that adequate funds will be available from the account when your annual expenses are due. This part of your closing costs is also referred to as "escrows", "pre-paids" or "impounds". In most instances, part of your monthly mortgage payment will likewise be for building up the required reserves in escrow to pay your annual expenses the subsequent year.
F

Fannie Mae

The two most well-known government-sponsored enterprise (GSE) organizations are the Federal National Mortgage Association, or Fannie Mae, and the Federal Home Loan Mortgage Corporation, or Freddie Mac. These two entities are the largest holders of mortgages in the country. They acquire and securitize whole loans for investment market.

FHA

Federal Housing Administration

FICO

This is another term for your credit score. The name comes from the credit analysis model developed by FICO, originally called Fair, Isaac and Company, an analytics firm based in California.

Foreclosure

Foreclosure is a legal process in which a lender attempts to recover the balance of a loan from a borrower, who has stopped making payments to the lender. Foreclosure proceedings force the sale of the home used as the collateral for the loan.

Freddie Mac

The two most well-known government-sponsored enterprise (GSE) organizations are the Federal National Mortgage Association, or Fannie Mae, and the Federal Home Loan Mortgage Corporation, or Freddie Mac. These two entities are the largest holders of mortgages in the country. They acquire and securitize whole loans for investment market.
G

Gift Letter

When you are receiving a gift of funds for your down payment, this is a letter from the source of those funds verifying that the funds are indeed a gift and not a loan.

GSE

The two most well-known government-sponsored enterprise (GSE) organizations are the Federal National Mortgage Association, or Fannie Mae, and the Federal Home Loan Mortgage Corporation, or Freddie Mac. These two entities are the largest holders of mortgages in the country. They acquire and securitize whole loans for investment market.
H

Hazard Insurance

Any hazard insurances you're required to maintain, such as homeowner's and flood insurance.

HMDA

Home Mortgage Disclosure Act

HOA

Homeowners’ Association
I

Impounds

This term refers to funds used for paying annual expenses associated with your mortgage, like property taxes and insurance premiums, which are held in an escrow account. When you close your loan, part of your closing costs will be funding your escrow account such that adequate funds will be available from the account when your annual expenses are due. This part of your closing costs is also referred to as "escrows", "pre-paids" or "impounds". In most instances, part of your monthly mortgage payment will likewise be for building up the required reserves in escrow to pay your annual expenses the subsequent year.
J

Jumbo

One of the key guidelines set forth by Fannie Mae and Freddie Mac are “conforming” loan limits. These limits can vary by county. A loan for an amount at or below these limits are generally considered “conforming”. A loan amount above these limits is “non-conforming” and may also referred to as a “jumbo” loan. There are some other factors that can make a loan non-conforming with Fannie/Freddie guidelines, but the “conforming” label typically refers to whether your loan falls within the prescribed loan limits.
L

Letter of Explanation

This is a generic term for a document that an explainer would create to formally explain some aspect of your financial situation that cannot be documented in another fashion. A letter of explanation (LOE) is akin to "sworn testimony". LOE’s need to be dated and signed. They should be as simple as possible while still providing all the needed relevant information.

Liabilities

Liabilities refers to the financial debt or obligations that you carry.

Lien

In the context of a mortgage, a lien is the security interest granted over the mortgaged property to secure the payment of the loan. A lien can also be placed on your property via a court judgement to ensure payment of other obligations. A lien is what will prohibit you from selling your home until the lien holder is paid off.

Liquid Assets

Liquid assets are your assets that can be converted to cash quickly.

Loan Application (1003)

To start you loan process, you will have to provide all the required information to complete the formal loan application. The actual form that you will need to sign was developed by Fannie Mae and is their form 1003, titled the "Uniform Residential Loan Application". You may hear this form referred to as the loan app, the 1003, or the URLA.

Loan Estimate

The Loan Estimate (LE) is a 3-page document you receive after you apply for a mortgage. It includes important information including the estimated interest rate, monthly payment, and total closing costs for the loan. The LE also includes information about the estimated costs of taxes and insurance, and how the interest rate and payments may change in the future. Also, the LE indicates if the loan has special features that you will want to be aware of, like penalties for paying off the loan early. The LE is not a commitment to lend you any funds and doesn’t represent any kind of decision by the lender as to whether or not you will be approved for the loan. Rather, the LE shows you what loan terms the lender expects to offer if you decide to move forward.

LTV

“LTV” refers to the loan-to-value ratio on your loan. It is calculated by taking the loan amount and divided by the value of your home. The LTV for a purchase transaction is calculated by dividing the loan amount by the lower of the appraised value of your home or the purchase price. The LTV for a refinance transaction is calculated by dividing the loan amount by the appraised value.
M

Mortgage Insurance

Mortgage insurance is designed to lower the risk for a lender of making a loan to you. Mortgage insurance largely facilitates the possibility of borrowers getting a mortgage when they have less than a 20% down payment. It helps to protect the lender against losses attendant to default of a mortgage.

When you get any loan with a down payment of less 20%, you will typically pay some form of mortgage insurance. Depending on the type of loan you get, your mortgage insurance premiums will be structured in different ways and referred to by different names. Below is a quick overview.

Conventional

With conventional loans, the mortgage insurance will be provided by a private company and is therefore referred to as private mortgage insurance, or "PMI". If you are required to pay PMI on a conventional loan, the premiums are typically part of your monthly payment. You are generally required to pay those premiums until your loan balance reaches 78% of the purchase price.

Federal Housing Administration (FHA)

With an FHA loan, your mortgage insurance premiums, or "MIP", are paid directly to FHA. MIP is required on all FHA loans. There is an upfront premium ("UFMIP") which is typically included in your closing costs, and can be rolled into your mortgage. There is also a monthly premium included as part of your monthly payment. Usually, this monthly premium remains a part of your payment for the life of your loan.

Veterans’ Affairs (VA)

Instead of typical mortgage insurance, the VA guarantee acts as a risk protection mechanism on VA loans. There is no monthly cost associated with your monthly payment. Instead, there is an upfront "VA Funding Fee" due at closing, which can be rolled into your mortgage. This funding fee will vary based on factors like the purpose of your loan, whether or not you’ve had a previous VA loan, your type of military service, your disability status, and the amount of your down payment.

US Department of Agriculture ("USDA" or "Rural Housing")

The insurance premium associated with USDA loans is typically referred to as the "Guarantee Fee". You’ll pay the guarantee fee both upfront, which can be rolled into your mortgage; and as part of your monthly payment.

Mortgagee

The lender.

Mortgagor

The borrower.
N

Note

This is one of the key documents you will sign at closing. It is the promise in writing to repay your loan with interest at a specific interest rate and by a specified time.
O

Occupancy

The use or intended use of the subject property for which you are trying to obtain a loan. You'll need to disclose whether you intend to use the property as your primary residence, as a second home, or as an investment property.
P

PITI

Most commonly, your monthly payment has four main components:

  • Principal: The portion of your payment that goes toward repayment of the outstanding loan balance.
  • Interest: The interest charge on the outstanding balance.
  • Taxes: One-twelfth of your expected annual property taxes which is deposited into your escrow account.
  • Insurance: This includes any hazard insurances you're required to maintain, such as homeowner's and flood insurance. Depending on your situation, this can also include mortgage insurance or other guarantee fees.

Frequently you’ll hear people refer to the first initial of the items above when describing a mortgage payment. For example, "P&I" refers to just the principal and interest portion of your payment. "PITI" refers to all 4 components together. Our payment calculator can help you get an idea of what your payment might look like.

Pre-paids

This term refers to funds used for paying annual expenses associated with your mortgage, like property taxes and insurance premiums, which are held in an escrow account. When you close your loan, part of your closing costs will be funding your escrow account such that adequate funds will be available from the account when your annual expenses are due. This part of your closing costs is also referred to as "escrows", "pre-paids" or "impounds". In most instances, part of your monthly mortgage payment will likewise be for building up the required reserves in escrow to pay your annual expenses the subsequent year.

Processing

The term "the loan process" typically refers to the entire processes of obtaining your mortgage, from loan application to closing. This is not to be confused with what is called "processing" your loan. Processing is the stage in your loan where loan processors, in partnership with your loan officer, will help you put together all of the documentation required for an underwriter to render a decision on your loan.

PUD

A Planned Unit Development (PUD) refers to a group of homes that can consist of different property types, including single-family homes, condos, and even retail stores. Similar to a condo project, a PUD has a homeowners' association (HOA) to which every homeowner contributes fees based on their percentage ownership in PUD. The HOA operates and governs the common areas, amenities, and services associated with the PUD.
R

REPC

The Real Estate Purchase Contract (REPC) is a form approved by the Utah Real Estate Commission and the office of the Utah Attorney General. It is the standard form used to enter into a real estate purchase transaction.
T

Term

"Amortization" is the spreading out of the repayment of your loan over time. The amount of time over which your payments are spread is the loan "Term". At the beginning of the loan term, most of your monthly payment goes toward paying the interest. With each subsequent payment, the percentage of your monthly payment going toward the principal will increase. An amortization schedule will show you each projected payment over the term of the loan and what percentage of each payment will go toward principal and interest.

Title

The title to your home is a document that shows legal ownership of the property.

Title Agent

"Closing Agent", "Title Agent", and "Escrow Officer" are all terms referring to the individual at the Title company who will take you through the closing documents required to finalize your loan. They will make sure you sign all the necessary documents and will also facilitate recording the needed documents with the County in which your property is located.

Tradeline

Tradelines typically refers to any line of credit that you've opened, such as a credit card, mortgage, or car loan. The number of tradelines on your credit report, as well as the history and status of each, is largely what determines your credit score.
U

Underwriting

In the context of mortgage, underwriting is the process of analyzing the risk associated with lending money to a specific individual for a specific property. You will be required to provide substantial documentation to obtain a mortgage. The primary purpose of the documentation you provide is for an underwriter to perform this risk analysis. Based on set guidelines, an underwriter has to determine basically a few things. First, they have to determine if your financial picture shows a reasonable ability and likelihood to repay the loan for which you are being considered. Next, they have to determine if the property that will be the collateral in the transaction reasonably has, and will likely maintain sufficient value. They will also determine if the subject property is likely to be free from title encumbrances or anything else that might pose a threat of financial loss.

USDA

US Department of Agriculture
V

VA

US Department of Veterans’ Affairs

VOD

Verification of deposit (VOD) is proof, provided by your financial institution verifying that you have a certain amount of funds in your account.

VOE

Verification of employment (VOE) is the process by which your past and present employment is reviewed. VOE's can be done electronically, in writing, and/or verbally.

VOM

Verification of mortgage is evidence of your mortgage payment history. If required, a VOM is used to verify your existing balance and monthly payments. It is also used to determine if any payments on the account have been late.

VOR

If you have been renting, sometimes a verification of rent (VOR) will be required to demonstrate your rental payment history.