Mortgage Terms & Definitions



01/05/2023

dictionary with definition of mortgage

The home-buying and building process can be an overwhelming so knowing the jargon and terminology will give you a leg up. We’ve compiled a list of terms that you’ll hear throughout your entire journey to home ownership.

  • Amortization
    • The process of how payments spread out over time. When you make a payment on your mortgage, a percentage of your payment goes toward interest and a percentage goes toward your loan principal.
  • Annual Percentage Rate (APR)
    • The interest rate paid on a loan annually plus any additional lender fees. APR is usually expressed as a percentage.
  • Appraisal
    • A rough estimate of how much a home is worth. Mortgage lenders require an appraisal before you sign on a home loan. The appraisal assures the lender they aren’t loaning you more than what your home is worth.
  • Basis points (BPS or ‘bips’)
    • A standard measure for interest rates and other percentages in finance. A single basis point equals 1/100th of 1 percentage point (100 basis points would add up to 1%).
  • Closing
    • The last step in buying and financing a home. All parties in a mortgage loan transaction sign the necessary documents. After signing these documents, a borrower becomes responsible for the mortgage loan.
  • Closing costs
    • Settlement costs and fees paid to a lender in exchange for finalizing your loan. Common closing costs include appraisal fees and loan origination fees.
  • Conventional mortgage
    • Any mortgage loan that is not insured or guaranteed by the government.
  • Construction permanent loan
    • This type of construction loan combines the approval process of a construction loan and a permanent mortgage. It normally consolidates the costs of these loans into one transaction and sets rules to follow to make sure that from construction to permanent, financing remains one transaction.
  • Debt-to-income ratio (DTI)
    • A measure of the relationship of your monthly debt to your monthly earnings before taxes.
  • Deed
    • The physical document you receive during the closing that proves you own your home.
  • Down Payment
    • The upfront payment made towards a loan.
  • Escrow account
    • The account where a lender holds money for property taxes, mortgage insurance, or homeowners’ insurance.
  • FHA loan
    • A mortgage type insured by the Federal Housing Administration (FHA) that allows more lenient borrowing guidelines than conventional loans.
  • Fixed-rate mortgage
    • A mortgage that has the same interest rate throughout the term of the loan.
  • Listing agent
    • A real estate professional who represents the home seller in a real estate transaction.
  • Mortgage lender
    • A company such as a bank or credit union that processes, underwrites, and funds a home loan.
  • Multiple Listing Service (MLS)
    • Privately owned databases that allow real estate professionals to share information with each other about properties for sale.
  • National Multistate Licensing System (NMLS)
    • A centralized online database that is used by mortgage and finance regulatory agencies to maintain state licensing programs. A NMLS Unique Identifier is the number permanently assigned for a company, branch, and individual that maintains a NMLS account.
  • Origination fee
    • A fee or group of fees paid to a lender for processing and funding a mortgage.
  • Pre-approval
    • An assessment of what a mortgage lender might lend you based on a preliminary review of your credit, debt, income, and assets available for a down payment.
  • Refinancing
    • Replacing an existing mortgage with a new mortgage that has more beneficial terms.
  • Underwriting
    • What happens behind the scenes once a mortgage application is submitted. The process a lender uses to take an in-depth look at credit and financial background to determine if someone is eligible for a loan.
  • USDA loan
    • A loan program backed and guaranteed by the U.S. Department of Agriculture (USDA) that helps low-to-moderate homebuyers finance homes in designated rural areas of the country.
  • VA loan
    • A mortgage backed and guaranteed by the U.S. Department of Veterans Affairs (VA) for active duty servicemembers, veterans, and eligible spouses.