OfferBackedBuyer Tools

Mortgage and home buying glossary

152 terms in plain English, each linked to the guide or tool that goes deeper.

A

Acquisition debt
Mortgage debt used to buy, build or substantially improve your home; the debt that mortgage interest deductions are based on. Learn more
Adjustable-rate mortgage (ARM)
A loan whose rate is fixed for an initial period, such as 5 or 7 years, then adjusts with a market index plus a margin, within caps. Learn more
Amortization
Paying off a loan through regular payments that cover interest and gradually reduce the principal. Learn more
Annual percentage rate (APR)
A yearly cost of borrowing that includes the interest rate plus certain fees and points, spread over the loan’s term. Learn more
Appraisal
A licensed appraiser’s estimate of a home’s market value, based mainly on recent comparable sales. Lenders require one for most loans. Learn more
Appraisal contingency
A contract clause letting you renegotiate or cancel if the home appraises below the price. Learn more
Appraisal gap
The difference between the contract price and a lower appraised value, which the buyer usually covers in cash. Learn more
Asset depletion
A way to qualify for a mortgage by converting savings and investments into monthly income over a set period. Learn more
Assumable mortgage
A loan a buyer can take over from the seller, keeping its rate and balance. FHA, VA and USDA loans are generally assumable. Learn more
Automated underwriting system (AUS)
Software, such as Fannie Mae’s Desktop Underwriter, that evaluates a loan application and issues a recommendation and document list. Learn more

B

Balloon payment
A large lump sum due at the end of some loans. Rare in home mortgages; disclosed on page 1 of the Loan Estimate.
Bank statement loan
A non-QM loan that qualifies self-employed borrowers on 12 or 24 months of deposits instead of tax returns. Learn more
Basis point
One hundredth of a percentage point. A rate change from 6.50% to 6.75% is 25 basis points.
Bridge loan
A short-term loan against your current home that funds the down payment on a new one until the old home sells. Learn more
Buydown
Paying upfront to lower a mortgage rate, either permanently (points) or for the first years (a temporary buydown such as a 2-1). Learn more
Buyer’s market
A market with more homes for sale than buyers, usually over six months of supply, giving buyers negotiating power. Learn more

C

Cash to close
The total you bring to closing: down payment plus closing costs and prepaids, minus deposits and credits. Learn more
Cash-out refinance
A refinance for more than you owe, paying you the difference in cash. Learn more
Chattel loan
A loan on a manufactured home as personal property rather than real estate, usually at a higher rate. Learn more
Clear to close
The lender’s confirmation that all underwriting conditions are met and closing documents can be prepared. Learn more
Closing
The final step of a purchase, when documents are signed, funds change hands and ownership transfers. Learn more
Closing costs
Fees and prepaid items paid to complete a purchase or refinance, typically 2% to 5% of the price. Learn more
Closing Disclosure
A five-page form with your final loan terms and costs, provided at least three business days before closing. Learn more
Co-borrower
A person who shares responsibility for a mortgage and whose income, debts and credit are counted. Learn more
Combined loan-to-value (CLTV)
All loans on a property, including second mortgages and HELOCs, divided by its value. Learn more
Comparable sales (comps)
Recent sales of similar nearby homes, used to estimate value. Learn more
Compensating factors
Strengths, such as large reserves or a high credit score, that help an application with a higher debt ratio get approved. Learn more
Conditional approval
An underwriter’s approval subject to specific conditions, such as additional documents. Learn more
Conforming loan
A conventional loan within the county loan limit that meets Fannie Mae and Freddie Mac standards. Learn more
Conforming loan limit
The largest loan Fannie Mae and Freddie Mac will buy in a county, set each year. Learn more
Construction-to-permanent loan
A single loan that finances building a home and converts to a regular mortgage when construction ends. Learn more
Contingency
A condition in a purchase contract that lets a party cancel if it isn’t met, such as inspection or financing. Learn more
Conventional loan
A mortgage not insured or guaranteed by a government agency. Most follow Fannie Mae or Freddie Mac rules. Learn more
Credit score
A number summarizing your credit history. Mortgage lenders usually use the middle of three bureau scores. Learn more
Credit utilization
The share of your available revolving credit you’re using; lower utilization helps your score. Learn more

D

Debt service coverage ratio (DSCR)
A rental’s monthly rent divided by its full payment; DSCR loans qualify investors on this ratio. Learn more
Debt-to-income ratio (DTI)
Monthly debt payments, including the new housing payment, divided by gross monthly income. Learn more
Deed
The legal document that transfers ownership of a property.
Deed in lieu of foreclosure
Transferring a home to the lender to avoid foreclosure. It carries a waiting period before a new mortgage. Learn more
Default
Failing to make mortgage payments as agreed. Learn more
Deferral
Moving missed mortgage payments to the end of the loan, often after forbearance. Learn more
Discount points
Fees paid at closing to lower your interest rate; one point is 1% of the loan. Learn more
Down payment
The part of the price you pay upfront rather than borrow. Learn more
Down payment assistance (DPA)
Grants or loans, usually from state or local agencies, that help cover a down payment or closing costs. Learn more
Due-on-sale clause
A loan provision requiring full repayment if the home is sold or transferred, with some legal exceptions.

E

Earnest money
A good-faith deposit made when an offer is accepted, applied to the purchase at closing. Learn more
Effective tax rate
A home’s yearly property tax divided by its market value; the best way to compare tax burdens. Learn more
Entitlement (VA)
The amount the VA will guarantee for an eligible borrower, which determines no-down-payment borrowing. Learn more
Equity
The home’s value minus what you owe on it.
Escalation clause
An offer term that raises your price above competing offers by a set amount, up to a cap. Learn more
Escrow (closing)
A neutral third party holding funds and documents until a sale’s conditions are met.
Escrow account
An account your servicer uses to pay property taxes and insurance from your monthly payments. Learn more
Escrow shortage
When an escrow account doesn’t have enough to cover upcoming taxes and insurance. Learn more
Extenuating circumstances
Events beyond your control, such as serious illness or job loss, that can shorten some credit-event waiting periods. Learn more

F

Fannie Mae
A government-sponsored enterprise that buys conventional mortgages from lenders and sets many of their rules.
FHA 203(k)
An FHA loan that finances a home and its renovation together. Learn more
FHA loan
A mortgage insured by the Federal Housing Administration, allowing lower credit scores and 3.5% down. Learn more
FHA Streamline
A simplified FHA-to-FHA refinance, often without an appraisal or income verification. Learn more
Final walkthrough
The buyer’s last look at the home before closing to confirm its condition and agreed repairs. Learn more
First-time home buyer
For most programs, someone who hasn’t owned a home in the past three years. Learn more
Fixed-rate mortgage
A loan whose interest rate stays the same for its entire term. Learn more
Float-down
An option to lower a locked rate if market rates fall before closing. Learn more
Forbearance
A temporary pause or reduction in mortgage payments during a hardship; the amount must be repaid later. Learn more
Foreclosure
The legal process by which a lender takes a home after the borrower defaults. Learn more
Freddie Mac
A government-sponsored enterprise that buys conventional mortgages and sets many of their rules.
Funding fee (VA)
A one-time fee on most VA loans, based on the down payment and prior use; waived for some disabled veterans. Learn more

G

Gift letter
A signed statement that money given toward a home purchase doesn’t have to be repaid. Learn more
Gross income
Income before taxes and deductions; what lenders use for debt ratios.
Guarantee fee (USDA)
USDA’s upfront (1%) and annual (0.35%) fees, which work like mortgage insurance. Learn more

H

HECM for Purchase
An FHA reverse mortgage that lets homeowners 62 or older buy a home without monthly mortgage payments. Learn more
HELOC
A home equity line of credit: a revolving second loan secured by your home, usually at a variable rate. Learn more
Home equity loan
A lump-sum second mortgage with a fixed rate, secured by your home. Learn more
Home inspection
A professional review of a home’s condition and systems before purchase. Learn more
Homeowners association (HOA)
An organization that manages a community or condo building and charges dues; dues count in your housing payment. Learn more
Homeowners insurance
Insurance covering the home’s structure, belongings and liability; required by lenders. Learn more
HomeReady and Home Possible
Fannie Mae and Freddie Mac programs allowing 3% down for buyers within income limits. Learn more
Homestead exemption
A reduction in taxable value for your primary residence, offered in most states. Learn more
House hacking
Buying a 2 to 4 unit home, living in one unit and renting the others. Learn more

I

Income-driven repayment (IDR)
A federal student loan plan with payments based on income; lenders may use the IDR payment for debt ratios. Learn more
Interest rate
The yearly cost of borrowing, used to calculate your monthly principal and interest payment. Learn more
Interest-only loan
A loan with payments covering only interest for an initial period, then principal and interest. Learn more
IRRRL
The VA Interest Rate Reduction Refinance Loan, a streamlined VA-to-VA refinance. Learn more
ITIN loan
A mortgage for borrowers who file taxes with an Individual Taxpayer Identification Number. Learn more

J

Jumbo loan
A mortgage above the conforming loan limit for its county, with stricter requirements. Learn more

K

Kick-out clause
A seller’s right to keep marketing a home under a sale-contingent contract, giving the buyer time to remove the contingency. Learn more

L

Lender credit
Money from a lender toward closing costs in exchange for a higher rate. Learn more
Lien
A legal claim against a property, such as a mortgage or unpaid tax, that must be cleared before or at sale. Learn more
Loan Estimate
A standard three-page form showing a loan’s terms and estimated costs, sent within three business days of applying. Learn more
Loan modification
A permanent change to a loan’s terms to make payments affordable after a hardship. Learn more
Loan officer (mortgage loan originator)
The licensed person who takes your application and guides your loan; licensed through NMLS.
Loan-to-value (LTV)
The loan amount divided by the home’s value. Learn more
Lock (rate lock)
A lender’s guarantee of your rate and points for a set period while your loan closes. Learn more

M

Manual underwriting
A human underwriter’s review when automated systems can’t approve a file, usually with stricter limits. Learn more
Margin
The fixed amount added to an index to set an adjustable rate after its fixed period. Learn more
Months of supply
How long it would take to sell all homes for sale at the current pace; a measure of competition. Learn more
Mortgage
A loan secured by real estate, which the lender can take if the loan isn’t repaid.
Mortgage broker
A licensed intermediary who compares loans from several lenders on your behalf. Learn more
Mortgage insurance premium (MIP)
FHA mortgage insurance: an upfront premium plus an annual premium paid monthly. Learn more
Mortgage servicer
The company that collects your payments and manages your escrow account. Learn more

N

Net tangible benefit
A required benefit, such as a meaningfully lower rate, for FHA and VA streamline refinances. Learn more
NMLS
The Nationwide Multistate Licensing System, which licenses mortgage companies and loan officers and assigns NMLS numbers.
Non-occupant co-borrower
A co-borrower who doesn’t live in the home, often a parent helping a child qualify. Learn more
Non-QM loan
A mortgage outside qualified mortgage rules, allowing alternative ways to qualify. Learn more
Nontraditional credit
Payment history for rent, utilities and similar bills, used when you have no credit score. Learn more

O

Origination charges
The lender’s own fees and points, shown in Section A of the Loan Estimate. Learn more

P

Partial claim
An FHA option that moves missed payments into an interest-free second lien repaid when the loan ends. Learn more
Payment shock
A large jump from your current housing cost to the new payment, or when an ARM or interest-only period resets.
Piggyback loan
A first mortgage plus a second mortgage, such as an 80/10/10, often used to avoid PMI or a jumbo loan. Learn more
PITI / PITIA
Principal, interest, taxes and insurance (plus HOA dues): your full monthly housing payment. Learn more
Pre-approval
A lender’s conditional commitment after reviewing your credit, income and assets. Learn more
Pre-qualification
An informal estimate of what you might borrow, based on information you provide. Learn more
Prepaid items (prepaids)
Costs paid at closing in advance, like interest until the first payment and the first year of insurance. Learn more
Prepayment penalty
A fee for paying off a loan early; not allowed on FHA, VA or USDA loans. Learn more
Price per square foot
A home’s price divided by its finished square footage; useful for comparing homes and areas. Learn more
Price-to-income ratio
Median home value divided by median household income; a measure of affordability. Learn more
Price-to-rent ratio
A home’s price divided by a year’s rent; lower numbers favor buying. Learn more
Principal
The amount borrowed, or the part of the balance still owed.
Private mortgage insurance (PMI)
Insurance protecting the lender on conventional loans with less than 20% down; removable later. Learn more
Proration
Splitting costs like property taxes between buyer and seller based on the closing date. Learn more
Purchase contract
The agreement between buyer and seller setting the price, terms and contingencies.

Q

Qualified mortgage (QM)
A loan meeting federal ability-to-repay standards, with limits on features like interest-only payments and fees. Learn more
Quitclaim deed
A deed transferring whatever ownership interest a person has; it doesn’t remove anyone from a mortgage. Learn more

R

Rapid rescore
A lender-requested credit update that reflects recent changes, such as paid-down balances, within days. Learn more
Rate-and-term refinance
A refinance that changes the rate or term without taking significant cash out. Learn more
Recast
Lowering your payment by applying a lump sum to principal and recalculating over the remaining term. Learn more
Refinance
Replacing your mortgage with a new one. Learn more
Rent-back (leaseback)
An agreement letting the seller stay in the home for a period after closing, paying rent. Learn more
Reserves
Money left after closing, measured in months of housing payments. Learn more
Residual income
Income left after major expenses; used by VA loans alongside debt-to-income. Learn more
Reverse mortgage
A loan for homeowners 62 or older that pays out equity, repaid when the home is sold. Learn more

S

Sale contingency
A clause letting a buyer cancel if their current home doesn’t sell in time. Learn more
Sale-to-list ratio
A home’s sale price divided by its list price; over 100% means it sold above asking. Learn more
Seasoning
How long you must wait, or how long money must be in your account, before a lender will count it or allow a refinance.
Second home
A home you occupy part of the year, financed with terms close to a primary residence. Learn more
Seller concessions
Seller-paid closing costs or credits, capped by loan type. Learn more
Seller’s market
A market with more buyers than homes, usually under four months of supply. Learn more
Short sale
A sale for less than the mortgage balance, with the lender’s approval. Learn more
Small Area Fair Market Rent (SAFMR)
HUD’s estimate of typical rent for recent movers by ZIP code and bedroom count. Learn more
SOFR
The Secured Overnight Financing Rate, the index most adjustable-rate mortgages now use. Learn more
Survey
A map of a property’s boundaries and improvements, sometimes required for closing.

T

Temporary buydown
An upfront payment that lowers the rate for the first year or years, such as a 2-1 buydown. Learn more
Title
Legal ownership of a property.
Title insurance
Insurance against problems with a property’s ownership history; a lender’s policy is required, an owner’s policy is optional. Learn more
Transfer tax
A state or local tax on transferring property; who pays depends on local custom. Learn more

U

Underwriting
The lender’s review of your finances and the property to approve a loan. Learn more
USDA loan
A 0% down mortgage for moderate-income buyers in eligible rural and suburban areas. Learn more

V

VA loan
A mortgage guaranteed by the Department of Veterans Affairs for eligible service members, veterans and some spouses. Learn more
Verification of employment (VOE)
The lender’s confirmation of your job, often repeated shortly before closing. Learn more

W

Warrantable condo
A condo in a project that meets Fannie Mae and Freddie Mac standards. Learn more
Wire fraud
A scam in which criminals send fake wiring instructions to steal closing funds. Learn more

0–9

2-1 buydown
A temporary buydown lowering the rate 2 points in year one and 1 point in year two. Learn more

Educational definitions, not legal or tax advice. Program rules change; check current guidelines with your lender.