• Adjustable Rate Mortgage (ARM)
    A mortgage with an interest rate that can change during the term of the loan. The timing and calculation of adjustments (also called resets) are determined by the loan program, and these details are disclosed in the mortgage documents.
  • Amortization
    Amortization is the gradual reduction of a debt by regular scheduled payments of interest and principal.
  • Balloon Mortgage
    A balloon mortgage is usually a short-term fixed-rate loan which involves small payments for a certain period of time and one large payment for the remaining amount of the principal at a specific time.
  • Bridge Loan
    A bridge loan is a short-term loan designed to cover the time it takes a borrower to secure permanent financing or remove an existing obligation.
  • Combined Loan to Value (CLTV)
    A related term is Combined Loan to Value ratio (CLTV) which considers all loans on the property.  LTV only considers the primary loan but CLTV would include any additional loans such as a Home Equity loan or Home Equity Line of Credit (HELOC).  An example of CLTV is if a borrower has a $70,000 first mortgage and a $20,000 home equity loan against his/her house, and the property is worth $100,000, then his LTV for the first mortgage is 70 percent ($70,000 / $100,000) and his CLTV is 90 percent ($70,000 + $20,000)/$100,000.
  • Conforming Loan
    A conforming loan is any loan that meets the criteria and limits set forth by government-sponsored enterprises (GSEs). Example Fannie Mae, Freddie Mac & FHLB.
  • Correspondent Lender
    A correspondent lender is a unique type of lender that originates, underwrites, and funds a mortgage loan using their name. The correspondent lender will then sell the loan to a larger mortgage lender, who becomes the loan servicer. The loan servicer will be the entity in charge of collecting the monthly payments. The institution that bought the mortgage may turn around and sell it once more on the secondary market, often to a large aggregator like Freddie Mac or Fannie Mae.  You might be wondering who buys these correspondent loans? The same credit unions, banks, and other financial institutions that lend directly to consumers also purchase loans from correspondent lenders. This means that you can take out a loan with a correspondent lender, but a credit union could obtain your loan on the secondary market and become your servicer. By the time they purchase the loan, all of the hard work of the origination process is complete. 
  • Encumbrance
    An encumbrance is a claim against a property by a party that is not the owner. An encumbrance can impact the transfer-ability of the property and restrict its free use until the encumbrance is lifted. The most common types of encumbrance apply to real estate; these include mortgages, easements, and property tax liens.
  • Fannie Mae
    Fannie Mae is the larger of two government-sponsored enterprises (GSEs) created by Congress. (The smaller one is Freddie Mac.) It purchases and sells residential mortgages that conform to the guidelines it has established. For this reason, loans bought and sold by Fannie Mae are called “conforming” mortgages. Fannie Mae is also referred to as Federal National Mortgage Association.
  • FHA
    FHA stands for Federal Housing Administration. The FHA is a U.S. government agency that offers insurance to lenders who provide loans to home buyers. Since Congress created the FHA in 1934, it has enabled millions of home buyers to purchase homes when they might not have qualified otherwise.
  • FHLB
    The Federal Home Loan Banks (FHLBanks, or FHLBank System) are 11 U.S. government-sponsored banks that provide reliable liquidity to member financial institutions (not individuals) to support housing finance and community investment. With their members, the FHLBanks represents the largest collective source of home mortgage and community credit in the United States.
  • Fixed Rate Mortgage
    A category of mortgage characterized by an interest rate that does not change over the life of the loan.
  • Forecast Standard Deviation (FSD)
    A measure of the expected error range of an estimate by an AVM, expressed as a percentage or a decimal. The lower the FSD, the higher the confidence in the precision of the estimate. Example: if the FSD for an estimate is 10%, then the expectation is that 68% of the time the actual market value will fall within +/- 10% of the model estimate.
  • Freddie Mac
    Freddie Mac is the smaller of two government-sponsored enterprises (GSEs) created by Congress. (The larger one is Fannie Mae.) It purchases and sells residential mortgages that conform to the guidelines it has established. For this reason, loans bought and sold by Freddie Mac are called “conforming” mortgages. Freddie Mac is also known as the Federal Home Loan Mortgage Corporation.
  • Good Faith Estimate (GFE)
    A disclosure that lenders must by law issue to mortgage applicants within three business days of their loan application date. The three-page GFE lists settlement charges and the terms of the mortgage.
  • Government-Sponsored Enterprise
    A government-sponsored enterprise (GSE) is a type of financial services corporation created by the United States Congress. Their intended function is to enhance the flow of credit to targeted sectors of the economy, to make those segments of the capital market more efficient and transparent, and to reduce the risk to investors and other suppliers of capital. The desired effect of the GSEs is to enhance the availability and reduce the cost of credit to the targeted borrowing sectors primarily by reducing the risk of capital losses to investors: agriculture, home finance and education. Well known GSEs are the Federal National Mortgage Association, or Fannie Mae, and the Federal Home Loan Mortgage Corporation, or Freddie Mac.
  • GSE
    government-sponsored enterprise (GSE) is a type of financial services corporation created by the United States Congress. Their intended function is to enhance the flow of credit to targeted sectors of the economy, to make those segments of the capital market more efficient and transparent, and to reduce the risk to investors and other suppliers of capital. The desired effect of the GSEs is to enhance the availability and reduce the cost of credit to the targeted borrowing sectors primarily by reducing the risk of capital losses to investors: agriculture, home finance and education. Well known GSEs are the Federal National Mortgage Association, or Fannie Mae, and the Federal Home Loan Mortgage Corporation, or Freddie Mac.
  • HELOC
    A home equity line of credit (HELOC) is a type of financing that consists of a revolving line of credit secured by a lien on a real estate, usually junior to a first mortgage, but not always. HELOCs can be in first lien position.
  • Home Equity Conversion Mortgage (HECM)
    The most popular reverse mortgage program in the US. It’s administered by HUD and is also referred to as an FHA reverse mortgage. Reverse mortgages allow homeowners 62 and over to convert some of their home equity to cash, but they are not required to repay the loan until they move out, sell the property or pass.
  • Home Equity Line of Credit
    A home equity line of credit (HELOC) is a type of financing that consists of a revolving line of credit secured by a lien on a real estate, usually junior to a first mortgage, but not always. HELOCs can be in first lien position.
  • Home Equity Loan
    Allows the homeowner to borrow against home equity (which is the difference between the property value and the mortgage balance(s) against it). Most home equity loans have fixed rates, but some are adjustable.
  • Home Value
    The estimate of the current value of a real estate property.
  • HUD
    U.S. Department of Housing and Urban Development. The Federal Housing Administration (FHA) within HUD insures home mortgage loans made by lenders and sets minimum standards for FHA loans.
  • Loan-to-Value (LTV)
    Loan to value ratio (LTV) is the relationship between a property value and the amount of loans against it. LTV is calculated by dividing the loan amount by the property value.
  • MERS
    Mortgage Electronic Registration System, Inc. or "MERS" is a company that was created by the mortgage banking industry. MERS maintains a database that tracks mortgages for its members as they are transferred from bank to bank. By tracking loan transfers electronically, MERS eliminates the long-standing practice that the lender must record an assignment with the county recorder every time the loan is sold from one bank/investor to another.
  • Mortgage-Backed Security (MBS)
    A mortgage-backed security (MBS) is an investment similar to a bond that is made up of a bundle of home loans bought from banks or credit unions that issued them (also known as the originator). Investors in MBS receive periodic payments similar to bond coupon payments. An MBS may also be called a mortgage-related security or a mortgage pass-through.
  • Piggyback Loan
    Also called a “purchase money second mortgage,” a piggyback loan is used by home-buyers with less than 20 percent down to avoid paying for private mortgage insurance (PMI). A piggyback loan occurs when a borrower takes out two loans simultaneously: one for 80 percent of a home’s value, and the other to make up for whatever cash is lacking to make up a 20 percent down payment. This is used as an alternative to private mortgage insurance. A piggyback loan is also known as a second trust loan.
  • PITI
    This stands for principal, interest, taxes and insurance. For most borrowers, PITI is the entire mortgage payment.
  • Portfolio Loans
    Rather than selling a loan to a third party such as Fannie Mae or Freddie Mac, a bank or a credit union choose to keep the loan(s) in-house.
  • Principal
    The balance on a loan. Monthly interest due is calculated by multiplying the principal balance by the monthly interest rate. When a monthly payment exceeds the interest due, the excess is applied to the principal balance, which reduces it. The faster a borrower repays the principal, the less interest expense will be accrued over the loan’s lifetime.
  • Private Mortgage Insurance
    Private mortgage insurance (PMI) is Insurance that covers mortgage lenders if the borrower defaults on the mortgage. It is nearly always required for loans exceeding 80 percent of the property value or purchase price.
  • Quitclaim Deed
    A quitclaim deed transfers the interests in a property from one person or party (the grantor) to another (the grantee). The grantor gives up his/her interest in the property and transfers it to the grantee. There is no guarantee made on the title for the grantee; therefore, the grantee has to assume all risks associated with the title for the property.
  • Rate and term refinance
    Replacing one loan with another without increasing the loan size. Only the rate and / or terms are changed.
  • Return on Investment (ROI)
    Return on investment (ROI) measures the gains received from an investment compared to that investment’s cost. A high ROI indicates favorable benefit to the investor.
  • Reverse Mortgage
    A reverse mortgage is a type of loan available to homeowners age 62 and older. Instead of purchasing a home and taking out a traditional mortgage, a reverse mortgage allows homeowners to convert the equity in their home into cash. Reverse mortgages were designed to give seniors an extra source of income to rely on for monthly expenses, medical bills, or whatever they please. There are no limitations on how funds from a reverse mortgage can be used.
  • Revolving Debt
    Revolving debt consist of open-ended accounts, usually with variable interest rates, pre-determined credit limits and payments that are calculated as a percentage of the unpaid balance. Credit cards, home equity lines of credit (HELOC) and personal lines of credit are all examples of revolving debt.
  • S-Corporation
    An S-corporation is a small business that pays no income tax. Instead, all of the income or losses for the business are passed through to its shareholders, who must report them on their personal tax returns.
  • Secondary Mortgage Market
    The secondary mortgage market is a marketplace where home loans, home loan portfolios and servicing rights are bought and sold between lenders and investors. A large percentage of newly originated mortgages are sold by the lenders who issue them into this secondary market, where they are packaged into mortgage-backed securities (MBS) and sold to investors such as pension funds, insurance companies, and hedge funds.
  • Sole Proprietorship
    A sole proprietorship is a business structure wherein there is no legal distinction between the owner and the business. One individual who handles the bulk of the work and operations typically runs a sole proprietorship. Income and losses from a sole proprietorship are taxed on the individual’s income tax return. There is no business liability exemption for a sole proprietorship.
  • Subprime Mortgage
    A subprime mortgage is a mortgage granted to a subprime borrower (an individual with less-than-perfect credit). The interest rate charged is higher than the prime rate obtainable by those with a good credit rating.
  • Title Insurance
    Title insurance is a policy, usually issued by a Title Insurance company, which guarantees that an owner has ownership/title to a property and insures against errors in the title search.
  • Underwater Mortgage
    An underwater mortgage is where the market value of a home today is lower than the current balance owed on its mortgage. In other words, selling the property won’t generate enough money to pay off that mortgage and will leave a shortfall. Some people describe this as having “negative equity.”
  • Unsecured Debt
    Unsecured debt is debt without collateral to back the loan in case of default.
  • VA Loan
    VA loan is a mortgage loan made by an approved lender and guaranteed by the Department of Veterans Affairs. They are made available to eligible veterans, those currently serving in the military, and, in some case, their spouses.
  • Variable Rate Mortgage
    A variable rate mortgage is one in which the interest rate is adjusted periodically based on an index.
  • Warranty Deed
    A warranty deed is a document often used in real estate providing the greatest amount of protection to the purchaser of a property. a Warranty Deed pledges or warrants that the owner owns the property free and clear of any outstanding liens, mortgages, or other encumbrances against it.