A-Z Mortgage Glossary

So, you’re interested in buying a home? Do you know your unsecured loan versus balloon payment? How about disclosures versus right of first refusal? The vocabulary used when applying for a mortgage shouldn’t be a barrier! Don’t let that lingo stand in your way! We put together a quick A-Z list to help get you started on the road to homeownership! This list isn’t exhaustive but it is just a small sampling of real estate and mortgage shop talk. Looking for more real estate shop talk? Come to our free Mortgage University event!

Visit our Mortgage Glossary! Ready to take the first step towards owning a home? Visit our UCB Mortgage Center! Have fun and happy house hunting!

UCB A-Z Mortgage Glossary:

Annual Percentage Rate (APR)

To make it easier for consumers to compare mortgage loan interest rates, the federal government developed a standard format called an “Annual Percentage Rate” or APR to provide an effective interest rate for comparison shopping purposes.  Some of the costs that you pay at closing are factored into the APR for ease of comparison.  Your actual monthly payments are based on the periodic interest rate, not the APR.

Balloon Mortgage

A short-term fixed-rate loan which involves smaller payments for a certain period of time and one large payment for the entire balance due at the end of the loan term.

Comparables

An abbreviated form of comparable properties. Comparables are used for comparative purposes in the appraisal process and are properties that are very similar to the property being appraised. They have been sold recently and have approximately the same size, location and features. Comparables help the appraiser determine the approximate fair market value of the subject property. Often just called “comps”.

Disclosures

Information that must be given to consumers about their financial dealings.

Escrow

Funds paid by one party to another to hold until a specific date when the funds are released to a designated individual.  Generally, an escrow account refers to the funds a mortgagor pays to the lender along with their principal and interest payments for the payment of real estate taxes and hazard insurance.  This is also referred to as impounds.  The money is held by the lender to make payments when they are due. An escrow can also refer to funds that are held by a third party to ensure the completion of repairs or improvements that must be completed on the property but that cannot be done prior to closing.

Fannie Mae

FNMA (Federal National Mortgage Association) One of the congressionally chartered, publicly owned companies that is the largest source of home mortgage funds.

Freddie Mac

FHLMC (Federal Home Loan Mortgage Corporation) One of the congressionally chartered, publicly owned companies that is the largest source of home mortgage funds.

Gap Loan

Short-term financing, usually to cover a gap in time between a person’s purchase of a home and that person’s later receipt of funds, usually from the sale of their previous home. Sometimes called a bridge loan or swing loan.

Homeowner’s Insurance

Insurance that protects a homeowner against the cost of damages to property caused by fire, windstorms, and other common hazards. Also referred to as hazard insurance.

Interest Rate

The cost of borrowing a lender’s money.  Interest takes into account the risk and cost to the lender for a loan.  The interest rate on a fixed rate mortgage depends on the going market rate and how many discount points you pay up-front.  An adjustable rate mortgage’s interest is a variable rate made up of the index and the lender’s margin.

Jumbo Mortgage

A loan that exceeds the maximum loan amount allowed by the most common mortgage investors. The cost of obtaining a jumbo mortgage is generally higher than the cost of obtaining a conforming mortgage. Also known as a non-conforming loan.

Keogh Plan

A tax-deferred pension account designated for employees of unincorporated businesses or for persons who are self-employed.

Loan to Value Ratio (LTV)

A ratio used by lenders to calculate the loan amount requested as a percentage of the value of a home.  To determine the loan to value ratio, divide the loan amount by the home’s value.  The LTV ratio is used to determine what loan types the borrower qualifies for as well as the cost and fees associated with obtaining the loan.

Mortgage Insurance

Insurance provided by a private company to protect the mortgage lender against losses that might be incurred if a loan defaults.  The borrower usually pays the cost of the insurance and is most often required if the loan amount is more than 80% of the home’s value.  Sometimes referred to as private mortgage insurance.

No Cash Out Refinance

A refinance loan is an amount that pays off the existing mortgage balance on the property and does not provide the borrower with any cash at closing.

Origination Fee

A fee charged by a lender as a way to cover processing expenses or to increase their profitability for originating a mortgage loan.  Most commonly, the origination fee is expressed as a percent of the loan amount.  For our comparison purposes, the origination fee is considered to be a lender fee.

Pre-qualification

Procedure to determine how much money a potential homebuyer will be eligible to borrow prior to actually applying for a loan.

Qualifying Thrift Lender

A lender who specializes in home mortgage finance under the rules established by the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA).

Right of First Refusal

A contract provision that requires a property owner to give another party the first opportunity to purchase or lease the property before it is offered to others.

Sweat Equity

Contribution to the construction of a property in the form of labor or services, instead of cash.

Total Closing Costs

This is the total of all the items that must be paid at closing related to your new mortgage. Since the exact charges for some of these items cannot be obtained until the time of closing, the figure may only be an estimate.

Unsecured Loan

A loan that is not backed by collateral.

VA Loan

A mortgage for veterans and service persons.  The loan is guaranteed by the Department of Veterans Affairs (VA) and requires low or no down payment.

Wraparound Loan

A loan that includes the remaining balance on an underlying first loan. Instead of having separate first and second mortgages, a wraparound loan has both.

Yield To Maturity (YTM)

The internal rate of return on an investment. Typically takes into account all investment returns and their timing.

Zoning map

A map of the local geographic area that defines current zoning designations and land use.