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Mortgage Glossary of Terms

Are you wondering what certain mortgage words and phrases mean? Here you will find a large list of terms that you should know and understand. Be sure to let me know if there’s other terms you’d like me to add to this list in the comments below.

  • Loan-to-Value (LTV) – how much mortgage you have against how much your home is worth. Mortgage divided by value = LTV. i.e. $160,000/$200,000 = 0.8 or 80% LTV
  • Debt-to-Income Ratio (DTI) – this is your monthly income against your monthly expenses. Income divided by expenses = DTI. DTI has both a front-end (housing) and back-end (total debt) number, so you’ll sometimes see it expressed as x%/x%. The front-end number matters, the back-end ratio is what is really the make-or-break number.
  • Private Mortgage Insurance (PMI) – this is a fee that you pay when you obtain a mortgage with less than 20% equity in your home. This can be paid monthly or in a lump sum at closing. Which option is best will depend heavily on your situation. This can be removed once you’ve got 20% equity or more. Remember: PMI does not protect you. It protects the lender in the event that you default on your loan.
  • Mortgage Insurance Premium(MIP) – PMI for FHA loans. This is usually at a cost of 0.85%, but can be 0.8% if you’re putting more down. Note that if you’re getting an FHA loan, you will pay monthly MIP for however long you have the loan, regardless of your equity position.
  • Up-Front Mortgage Insurance Premium (UFMIP) – a 1.75% fee paid up-front as part of an FHA transaction.
  • Federal Housing Administration (FHA) – The government organization that backs FHA loans. Requires minimum 3.5% down and has more lenient income requirements.
  • Department of Veteran’s Affairs (VA) – The government organization that guarantees VA loans. You can get into a VA loan with $0 down, but you must be a veteran of the US military to obtain this kind of loan.
  • VA Funding Fee (VAFF) – A fee charged up front on all VA loans unless the veteran is exempt. If not exempt, this is 2.15% for the first use and 3.3% for each subsequent use.
  • Federal National Mortgage Association (FNMA) – a.k.a. Fannie Mae. One of two government-sponsored entities that backs most non-FHA, non-VA and non-Jumbo loans. Loans that fall under their guidelines are referred to as conforming loans.
  • Federal Home Loan Mortgage Corporation (FHLMC) – a.k.a. Freddie Mac. One of two government-sponsored entities that backs most non-FHA, non-VA and non-Jumbo loans. Loans that fall under their guidelines are referred to as conforming loans.
  • Nationwide Multistate Licensing System (NMLS) – the organization which is responsible for testing and licensing all loan officers in the US. Not to be confused with the MLS (Multiple Listing Service) utilized by real estate agents to list homes for sale.
  • Conventional Loan – A Conventional loan solution backed by Fannie Mae or Freddie Mac, not one of the government agencies.
  • 203k – An FHA loan program that allows for repairs to be performed to a property. These loans take longer than an average loan but are great if you want to purchase a property in disrepair.
  • Renovation Loan (reno) – A conventional loan program similar to the 203k.
  • FHA 4000.1 – The comprehensive document of FHA loan guidelines.
  • Loan Officer / Loan Originator (LO) – the person who you speak with regarding your interest rate and loan terms. Unless otherwise exempt (as an employee of a depository institution), they are required to have a license both with the NMLS and the state-run entity in the state where they are originating loans. Note the loan officer does not need to be physically present in a state to originate a loan there.
  • Mortgage Lender – an institution that offers loan products. Lenders employ loan officers. Will sometimes have access to specialty in-house loan incentives that you can’t find elsewhere.
  • Mortgage Broker – an individual or group that does not work for a single mortgage lender. A broker has access to multiple lenders, which allows them to look at multiple options to find the best deal possible. Brokers sometimes have access to better rates but they may not have access to all of the in-house programs that a lender does.
  • Depository Institution – a bank or credit union. They deal in both holding your money as well as originating mortgage loans. e.g. JP Morgan Chase, Bank of America.
  • Direct Lender – a mortgage lender that only deals in mortgage loans and does not accept deposits or hold funds for their customers. e.g. Scott Buehler of Guild Mortgage.
  • Underwriter (UW) – The person who reviews your loan and issues credit approval.
  • Underwriting – The process by which your loan file is reviewed and a credit approval is issued.
  • Origination – The starting of a mortgage loan.
  • Re-Origination: The re-starting of a mortgage loan. Not usually a good thing.
  • Escrow Officer / Title Officer – The person acting as a 3rd party intermediary between you, the lender and the seller (if it’s a purchase). They collect any funds necessary, arrange a notary for the signing of your loan docs and will be responsible for disbursing funds to the appropriate person(s) and recording your deed of trust at the end of the loan transaction. In some states these are one-in-the-same. In other states that are separate entities.
  • Earnest Money Deposit (EMD) – the funds you provide up front on the purchase of a home as a show of good faith to the seller. It signals your intention to complete the process.
  • Down Payment – the full money you put towards the purchase of a home. The total down payment includes the EMD.
  • Non-Recurring Closing Costs – The cost of doing the loan. This includes, but is not limited to, any origination fee, points for your interest rate, appraisal fee, title & escrow fees. These will be broken down under sections A, B & C on page 2 of your Loan Estimate.
  • Recurring Closing Costs – Per diem interest, insurance and property taxes. See Impounds below.
  • Impounds – Sometimes also referred to as escrows, these are monthly payments made as part of your mortgage payment. The most commonly impounded items are hazard insurance and property taxes, however you can also impound other types of insurance. The impounds are held in an impound account and are paid out when these items come due.
  • Principle, Interest, Taxes & Insurance (PITI) – Sometimes seen as PITIA (Assessments), this is your mortgage payment. You can also see P&I (Principle & Interest) as well as T&I (Taxes and Insurance).
  • Loan Estimate (LE) – A document that outlines the terms of your loan, including your interest rate, the term in years, your monthly payment, as well as what fees are being charged. This is required to be provided to you within 3 days of the loan officer receiving your complete credit package. The lender is also required to provide an updated one when certain changes are made to your loan, including when your loan is locked, if the loan amount changes or there are changes to certain fees. Note that the numbers on the LE will often change a bit during the loan process.
  • Conditional Approval / Credit Approval. This is what you’ll usually receive after an underwriter has reviewed your loan file. This means that your loan is approved pending you providing the conditions that the underwriter has outlined.
  • Suspense – This means that your loan file has been put on hold because the underwriter was unable to approve it. Don’t fret! There is usually a means by which to resolve this. Work with your loan officer and see what you can do.
  • Clear-to-Close (CTC) – Once the underwriter has reviewed and is satisfied with all of your conditions, you’re clear-to-close or have received final approval! That means the lender can start working on getting your loan documents over to escrow, so you’ll be needing to warm up your signing hand. Note that this does not mean that your loan is closed yet.
  • Closing Disclosure (CD) – This is one of the last documents that you’ll receive in the loan process. It give you a final chance to review your loan information and make sure that everything is as it should be. If you see any red flags or any discrepancies, ask your loan officer. Once you sign the initial CD (there can sometimes be more than one), you trigger a 3-day waiting period before you’re eligible to sign your loan documents. If you sign your CD on Monday, you’re eligible to sign loan docs on Thursday.

Note: The Closing Disclosure is the document that details the terms of your loan and what says that you agree to pay the loan back.

  • Deed of Trust – This is the document that is put on record and states that you own the home.
  • Vesting – how you will hold title to the home. There are multiple ways depending on how many people are on title and which state you’re in. Your LO or escrow officer should have more info if you’re not sure. If anyone is going to be on title with you but not on the loan, please let your loan officer know early in the mortgage process.
  • Funding – This is where the lender sends the funds for the loan to escrow. Escrow then disburses those funds to the appropriate parties (seller, old lender, you, etc.) as necessary.
  • Recording – When you’re on record, you officially own the home. Congratulations. Escrow takes the deed to the county recorders office and puts it on record with them. This is either the same day as or the day after funding, depending on when funds reach escrow.
  • Arrears – money that is owed. Interest on a mortgage is paid in arrears, meaning that when you make your August payment, you’re paying the interest for having had the loan in July. Comparatively, on an apartment, your August payment is to allow you to live there through August 31.

I hope this helps answer some of your terminology questions!