As a homeowner, industry terminology can be overwhelming. Fear not; we’ve compiled this comprehensive glossary of the most common words and phrases related to homeownership, lending, real estate, financial technology, and more.
- Accessory Dwelling Unit (ADU)
A smaller, attached or detached residential unit located on the same lot as a standalone single-family home.
- Actual Cash Value
The amount of money needed to replace damaged property, minus depreciation.
- Adjustable-Rate Mortgage (ARM)
A mortgage loan that typically provides a lower starting interest rate than a fixed-rate mortgage. This rate can fluctuate during what’s known as an adjustment period, depending on market changes that are documented in the LIBOR and Treasury indexes. This is also known as a variable-rate loan.
- Adjustment Period
A period of time between interest rate changes for an adjustable-rate mortgage. The first one is typically at the start of the loan and lasts up to 10 years, with adjustment periods coming annually thereafter.
The process of paying off a loan during its term at the interest rate indicated in the loan document.
- Amortization Schedule
A timeline, provided by one’s mortgage lender, that illustrates the increase in principal and decrease in interest.
- Annual Percentage Rate (APR)
The annual cost of a loan, which includes the interest rate, points, broker fees, and additional fees.
- Application Fee
The cost to apply for a mortgage loan, which is charged by the lender and includes processing fees.
An analysis of a property conducted by a professional appraiser, which includes nearby similar property sales and estimates the property’s value.
The professional who conducts the appraisal of a home.
A rise in a property’s market value, usually due to home improvements or market conditions.
The process through which disputes between parties (two individuals or an individual and an institution/business) are resolved with the help of an objective and unbiased third party. This typically involves a hearing where both parties can voice their side of the story.
A material once used to fireproof and insulate homes that has been found to be toxic and is linked to several diseases. It can still be found in some older homes.
All valuable items that an individual owns. These include stocks, bonds, mutual funds, certificates of deposit (CDs), 401(k) and IRA accounts, and checking and savings accounts. Prospective homebuyers are typically required to have their assets verified to confirm their capacity to handle a mortgage loan.
When a homebuyer agrees to become responsible for paying the mortgage loan instead of the home seller.
- Balloon Payment (or Balloon Mortgage)
A type of mortgage loan that includes monthly payments based on a 30-year amortization schedule and a lump sum payment of the unpaid balance that’s due at the end of a designated time period, typically five to seven years.
A financial state that is declared when an individual is legally declared unable to repay debts, and can affect both one’s credit and approval for future financing needs.
A homeowner’s ability to make timely loan payments. This can be influenced by several factors, including current and future income, savings, and assets.
- Closing (Closing Date)
The date that marks the completion of a home sale between the buyer and the seller, when the buyer signs the required documents and pays their closing costs.
- Closing Agent
A professional who handles all processes related to the closing of a home sale, including recording documents and disbursing funds.
- Closing Costs
The costs required to complete the purchase of a home that are paid at the closing. Closing costs are in addition to the home price and include taxes, title insurance, points, prepaid or escrowed items, and financing costs.
- Closing Disclosure
A document that includes all of the details of a mortgage loan, including terms, fees, and costs, and must be delivered to the borrower by the lender at least three days before closing takes place.
Any property that’s used as a form of security for debts or other obligations — for a mortgage, the house would be considered the collateral.
- Commitment Letter
A letter from a lender to a homeowner that confirms the amount of a mortgage loan, the loan’s term, interest rate, loan origination fee, annual percentage rate (APR), and any monthly charges.
An agreement or compromise made by the seller during the sale of a home and typically requested by the buyer in the written offer. Common concessions include partial payment of closing costs or appraisal fees.
A type of home that’s located in a building or community with multiple units, also known as a “condo” for short. While the condo owner has rights to their individual unit, they do not own public or common spaces or features of the condo building. Typically, the condo owner pays monthly fees to the condominium association to cover maintenance, taxes, and insurance.
A backup plan for a hypothetical event prior to a home sale. For example, a buyer’s offer may be contingent upon the home passing inspection.
A response — in the form of a second offer — from the seller of a home to the buyer. If the seller thinks the buyer hasn’t offered enough for the home, they may present a counter-offer at a higher price.
An individual’s capacity to borrow money and pay it back over time. One’s credit limit (or maximum) can be increased by their lender based on their positive financial standing and reliable record of repayment.
- Credit Bureau
A company that collects data on credit-using consumers and sells this information to lenders through credit reports.
- Credit History
The complete record of an individual’s credit use. This list includes individual debts and their payment statuses.
- Credit Inquiry
A request from an individual or institution for a copy of one’s credit report. Over time, several inquiries can negatively affect an individual’s credit score.
- Credit Report
A widely-used document within the credit industry that monitors and shares an individual’s credit and payment history.
- Credit Score
A number, expressed in the hundreds, that is generated by a computer and provides a summary of your creditworthiness based on past payment history.
A lender’s assessment of your ability to qualify for credit products and your capacity to repay debt.
The money that an individual (or organization) owes to another individual or organization.
- Debt-to-Income Ratio (DTI)
The percentage of an individual’s gross monthly income that is used to cover monthly housing expenses, car payments, and other debts.
A document that legally transfers title or ownership of a property to an individual.
- Deed of Trust
A document that allows a third-party trustee to hold a property as a security for a lender or other lien holder. Once the loan is paid back or the lien is settled, the deed of trust is released, and if the homeowner defaults on the loan or lien, the trustee sells the property and settles the loan or lien. This is also known as a trust deed.
- Deed-in-Lieu of Foreclosure
The cancellation of a mortgage loan when a homeowner voluntarily transfers the title of their property to the mortgage company. This typically happens when the homeowner is unable to sell the home for fair market value after 90 days.
An individual’s failure to fulfill one of their legal obligations. In the context of a mortgage loan, this is most often used when a homeowner is delinquent on their payments over a period of time.
The decrease of a home’s value, usually caused by conditions in the market or failure to maintain the home.
- Discount Points
Discount points, also known as mortgage points, are an optional method of prepaying your mortgage interest. Each discount point is equal to 1% of the loan amount, so the more points you purchase, the lower your monthly mortgage payment will be. It should be noted, however, that discount points are an additional expense on top of your closing costs and down payment.
- Down Payment
An initial payment made up front on a home, which usually ranges between 3 and 20% of the full price of the home.
- Earnest Money Deposit
The (usually non-refundable) money a prospective homebuyer puts down to demonstrate commitment to purchasing the property.
- Effective Period
The length of a Hometap Investment, which is 10 years. A homeowner can settle their Investment at any time before or at the end of the effective period through a refinance, buyout with savings, or sale of their home.
A limit on how a homeowner can use real estate. Encumbrances are raised by individuals or organizations other than the owner and include zoning laws or liens on the property for debt repayment.
Within the context of home equity, the value of a home beyond the total amount of liens against the property. For example, if the homeowner owes $200,000 on the house but it is valued at $260,000, they have $60,000 in equity.
The state in which money or documents are held by an objective third party prior to closing.
- Fixed-Rate Mortgage
A mortgage loan which has a set interest rate that doesn’t fluctuate during the life of the loan.
A lender’s temporary reduction or suspension of a homeowner’s mortgage loan payments during a period of financial instability. Once the homeowner exits forbearance, they are expected to make up for their missed payments through a reinstatement or repayment plan.
An event which rescinds all homeownership rights when a homeowner goes into default after failing to make timely mortgage loan payments or defaults on a secured lien.
- Free and Clear Title
A property title that does not have any liens or other hindrances like easements or boundary disputes. Also known as simply a “clear title,” the owner of the title is easily identifiable.
- Gift Letter
A letter from a homeowner’s family member that confirms their donation of a specific amount of money that does not need to be repaid — the gift is typically used toward a down payment.
- Gross Income Multiplier
An approximate estimate of an investment property’s value that is calculated by dividing a property’s sale price by its annual gross rental income.
- Gross Monthly Income
The income earned by an individual each month prior to taxes and other deductions.
- Home Equity Investment
An alternative form of home financing that provides homeowners with equity in the form of cash in exchange for a share of their home’s future value.
- Home Equity Line of Credit (HELOC)
A home financing option that allows a homeowner to open a line of credit that’s secured by the equity they’ve built in their home.
- Home Equity Loan
A loan that allows homeowners to borrow against the equity they’ve built in their home.
- Home Inspection
An inspection performed by a professional to assess the state of a property after a purchase offer is made and accepted. The inspection typically includes a thorough examination of the foundation, roof, plumbing, heating and cooling systems, and more.
- Homeowners Insurance
An insurance policy that covers disasters, like floods or fires, that cause damage to homes or pieces of personal property, as well as injuries to visitors at the home.
- Housing Expense Ratio
The portion of a homeowner’s gross monthly income that is allotted to their mortgage loan — typically expressed as a percentage.
- Imputed Interest
The interest that a lender is assumed to have been paid — and which they report as income on their taxes — regardless of whether or not the amount was actually received.
A published collection of interest rates that are used to calculate the interest rate for an adjustable-rate mortgage loan.
- Individual Retirement Account (IRA)
A savings plan which is tax-deferred and designed to help you fund retirement.
A widespread price increase driven by market conditions.
The amount of money you’re charged by a lender to borrow money, typically communicated to you as a percentage of the full sum that was borrowed.
- Judgment Lien
A lien that is attached to a homeowner’s property without their agreement and is created when another party wins a lawsuit against the homeowner.
- Junior Mortgage
A second mortgage loan that is subordinate to your first mortgage loan.
- Keogh Funds
A retirement savings plan for small business owners and self-employed individuals that is tax-deferred and the contributions to which are tax-deductible.
Any financial obligations or debts you have.
A charge of claim that is placed on a property by a lender to satisfy a legal obligation. For example, a lien may be put on a home if a homeowner is delinquent on tax payments.
- Lien Waiver
An agreement between a payer and counterparty in which the counterparty relinquishes their right to place a lien on the payer’s property or possessions.
- Life Estate
The ownership of property for the duration of an individual’s life.
- Loan Estimate
A document provided to a homeowner by a lender that lists the total projected costs and fees associated with a mortgage loan. The lender must provide this estimate to the homeowner within three business days of receiving the loan application.
- Loan Modification
An official adjustment made to the original terms of a homeowner’s mortgage loan by the lender to make payments more affordable.
- Loan Origination Fees
The fees a homeowner pays to a lender in order to process a mortgage loan application, typically expressed as points (one point equals 1% of the loan amount).
- Loan-to-Value (LTV) Ratio
A ratio used by financial institutions and lenders to express the amount of a loan in relation to the value of an asset. The LTV ratio helps lenders determine how much risk they’re taking on with a particular applicant.
- Lock-In Rate
An agreement that guarantees a designated mortgage loan interest rate for a specific period of time.
- Loss Payee
The party with legally secured insurable interest in a property — this is typically a lender in the case of a mortgage loan.
- Low-Down-Payment Feature
An option with some fixed-rate mortgage loans that allow homeowners to put as little as 3% down to purchase a home.
The percentage that is added to the index for an adjustable-rate mortgage loan in order to determine the interest rate for each adjustment period.
- Market Value
A home’s current value as it relates to how much a homebuyer would pay. This number is often determined by an appraisal.
- Mortgage Broker
A finance professional who typically operates independently to facilitate the completion of mortgage loans.
- Mortgage Insurance (MI)
Refer to Private Mortgage Insurance.
- Mortgage Lender
The financial institution that funds a mortgage loan and facilitates the process from application through closing.
- Mortgage Loan
A loan which uses an individual’s home as collateral. This term can also refer to the amount of money a homebuyer borrows, with interest, to purchase the property, or the actual document the buyer signs to allow the lender to place a lien on the home.
- Mortgage Rate
The interest rate attached to the mortgage loan a buyer takes out to purchase the home.
- Mortgage Term
The number of years a homeowner makes mortgage loan payments on a home before they fully own it. Terms usually range from 15 to 30 years.
- Mutual Funds
A fund that contains money pooled by investors, which is used to purchase various securities.
- Net Monthly Income
A homeowner’s take-home pay each month after taxes.
- Normal Wear and Tear
The damage to property from ordinary exposure to elements and use over time.
A legally-binding agreement between a lender and homebuyer in which the buyer promises to repay the loan with specific terms. Also known as a promissory note.
- Notice of Default
A notification sent to a homeowner if they’ve failed to fulfill their legal obligations. In the context of a mortgage loan, a notice of default from a lender alerts the homeowner that their delinquent mortgage loan payments have exceeded the amount or time limit set forth in their loan contract.
- Notice of Nonresponsibility
A legal document that protects property owners from liability for nonpayment of property improvement services that they themselves did not directly commission, like construction.
An official bid from a potential homebuyer to a home seller to purchase a home.
- Offsite Costs
Construction costs that are incurred in a location away from the construction site, like utilities and sewer lines.
- Open House
An event held by a home seller’s real estate agent that opens the house up to the public.
- Open-End Mortgage
A type of home loan in which the amount of the loan is accessed on an as-needed basis instead of advanced at one time.
- Origination Fee
A fee a borrower pays to a lender to process a loan application.
- Package Mortgage
A mortgage loan that’s used to finance both the purchase of real estate property and personal property, like appliances and furniture.
- Participation Mortgage
A specific type of mortgage loan that lets two or more parties share the proceeds from a piece of property.
- Personal Property
An individual’s property that can be moved from one location to another.
- Piggyback Loan
A term used by mortgage lenders when a borrower takes out a first and second mortgage loan simultaneously. This is often done to bypass high interest rates or private mortgage insurance (PMI).
A portion of the total mortgage loan amount — each point is equal to 1%. For example, if the mortgage is for $100,000, one point is $100.
- Pre-Approval/Pre-Approval Letter
A letter to a prospective homebuyer from a lender that notifies them that they are preliminarily approved for a mortgage loan for a set amount. Pre-approvals differ from pre-qualifications in that they typically are more involved and involve asset and income verification.
- Pre-Qualification Letter
A letter to a prospective homebuyer from a lender that notifies them that they qualify for a mortgage loan, but does not specify an amount.
- Predatory Lending
A type of lending practice in which lenders give mortgage loans to individuals who are unable to repay their balance, or add exorbitantly high fees and costs to loans.
- Prepayment Penalty
A fee that’s charged to a homeowner by some lenders for paying off all or some of their mortgage loan early.
- Prime Rate
The lowest rate at which money can be borrowed commercially.
The sum of money a homeowner borrowed that has not been repaid to the lender. The principal does not include interest.
- Private Mortgage Insurance (PMI)
The type of insurance that’s usually required when a homebuyer makes less than a 20% down payment on a home.
- Property Taxes
The taxes a homeowner pays to their local government, which are used to fund public needs in the community like education, road repairs, snow removal, and more. Property tax amounts are dependent on home value and location.
A toxic gas that can lead to cancer and other illnesses, often located in the soil below the house and detected in basements.
- Rate Cap
The maximum amount of interest rate increase or decrease on an adjustable-rate mortgage loan during an adjustment period.
- Ratified Sales Contract
An official — but not final — contract that demonstrates agreement between both the seller and buyer of a home.
- Real Estate Agent
A person who offers home buying and selling services and receives a percentage of the home sale price from the seller.
A real estate agent who is a member of the National Association of Realtors.
The process of filing a deed, mortgage, or other document with a county. The document is dated and time stamped. When closing on a home, the deed and any mortgage loan documents will be recorded. The homeowner pays a fee for recording.
- Reduction Certificate
A document provided and signed by a lender that shows the loan balance, its maturity rate, and interest rate.
A form of home financing in which the homeowner replaces their original mortgage loan with one that has a larger balance in order to get the difference in cash or with one that has the same balance in order to get a lower interest rate and/or monthly payment.
A method of repayment on delinquent mortgage loan payments in which the lender agrees to let the homeowner pay the total amount they owe in one lump sum by a designated date.
- Repayment Plan
An agreement between a homeowner and lender that gives the homeowner a set period of time to make up for delinquent mortgage loan payments. This plan usually combines the overdue payment amount and regular monthly payment.
- Replacement Cost
The amount of money required to cover damaged property, not including a deduction for depreciation.
- Rescission/Rescission Period
The cancellation of a loan by a consumer. The consumer’s rescission period lasts three days after closing, during which time they have the right to rescind the contract.
- Reverse Mortgage
A type of mortgage loan for homeowners ages 62 and older in which the lender pays the homeowner based on a percentage of the home’s value.
- Second Mortgage
A lien on a property that already has a lien attached to it.
- Short Payoff
A condition a mortgage lender may agree to if an individual sells their house but the proceeds are less than the total loan balance. The lender then writes off the amount of the loan balance that exceeds the sale profits.
- Short Sale
A sale that occurs when a homeowner defaults on a mortgage loan or otherwise finds themself in financial trouble and sells the property for less than the amount they owe. All proceeds from the short sale go to the seller’s lender.
- Simple Interest
The interest calculated on the principal of a loan (typically an auto or short-term personal loan). To determine simple interest, multiply the daily interest rate by the principal by the number of days in between payments.
- Spot Loan
A personal or business installment loan that’s issued rapidly (“on the spot”) to help individuals or businesses cover unexpected expenses that arise.
- Subordination Agreement
A document that determines the priority of lien repayment (which may include mortgages, home equity loans, HELOCs, or home equity investments) through a rank that assigns a lien position to each.
Also referred to as the “right of survivorship,” a legal privilege provided to an individual that grants them ownership of a property when the previous owner dies.
- Tax Lien
A government-issued legal claim against a property owner who fails to pay taxes. If the tax lien is not handled, a tax levy that seizes property could follow.
A document that verifies the right to own a particular piece of property or land.
- Title Insurance
Insurance that can be obtained by lenders and homeowners that protects both parties against potential legal issues with the title.
- Truth-In-Lending Act (TILA)
A federal law that requires consumer lenders to disclose certain specifics of the loan, like total cost of credit and APR.
- Underwater Mortgage Loan
A home purchase loan for which the principal exceeds the value of the home in the free market, leading to negative equity.
A process by which a lender determines an applicant’s eligibility to receive a mortgage loan, that includes assessment of the borrower’s creditworthiness and capacity to keep up with payments.
- Uniform Residential Loan Application
The industry standard application your lender will request when you apply for a mortgage loan. It includes fields for income, assets, liabilities, and more.
Documentation that guarantees a product’s quality and provides a promise to fix or replace it in the event of breakage or malfunction.
- Wrap-around Mortgage
A specific type of home loan that lets a home seller keep their loan while the buyer pays them a monthly amount directly, usually at a higher interest rate than that of the original loan.