Mortgage
How Does LendingTree Get Paid?

How Does LendingTree Get Paid?

LendingTree is compensated by companies on this site and this compensation may impact how and where offers appears on this site (such as the order). LendingTree does not include all lenders, savings products, or loan options available in the marketplace.

50 Common Mortgage Terms Defined

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It may not have been reviewed, commissioned or otherwise endorsed by any of our network partners.

It can feel like a dream come true to finally take concrete steps to buy a house — but wading into a world of unfamiliar mortgage terms and real estate jargon can quickly become overwhelming. That’s why we’ve compiled a glossary of 50 must-know terms below for every stage of the homebuying process.

Before you buy: Real estate terminology made simple

Browsing listings, touring homes and ultimately making the decision to put in an offer is the order of operations for most homebuyers as they begin their homeownership journey. The specialized terminology you’ll encounter during these steps comes from the real estate industry and the procedures around making an offer.

As-is

A property where “what you see is what you get.” Selling a home “as-is” means the seller is unwilling to make repairs or negotiate with a buyer based on the costs of needed repairs. Buyers should ensure that any home bought as-is is thoroughly inspected prior to closing.

Buyer’s agent

A real estate professional who represents a homebuyer in a real estate transaction.

Commission

One of the costs of selling a home, the real estate agent’s commission, is a fee paid to the real estate agents who help you sell your home. The fee is typically 5% to 6% of the sales price, and is usually paid by the seller to their listing agent, who then splits the commission with the buyer’s agent for bringing the buyer to the table.

Concession

A discount or benefit offered by a buyer or seller to help close a home sale. Concessions are typically negotiated in the purchase contract and may be applied to closing costs. For example, a seller may be willing to pay for new appliances or home repairs.

Contingency

A clause in a purchase contract that allows the buyer to back out of the agreement if a certain condition isn’t met. Common contract contingencies kick in when the buyer can’t get a loan (financing contingency), repairs can’t be negotiated (home inspection contingency), the home’s value is below the asking price (appraisal contingency) or the buyer is unable to sell their current home (home sale contingency).

Counteroffer

A response to a previous offer. If a buyer’s offer price is lower than what you’re willing to accept as a seller, you might make a counteroffer. Likewise, a buyer can counter a seller’s counteroffer with additional terms.

Earnest money deposit

An initial deposit (usually 1% to 3% of the sales price) to show a buyer’s intent to buy a home. If the purchase moves forward successfully, the earnest money is typically applied toward the buyer’s closing costs or down payment.

Home inspection

A written report providing an inspector’s professional opinion of a home’s condition, including its utility systems and structural elements. A home inspection isn’t “pass or fail” — it simply provides information to the buyer.

Listing agent

A real estate professional who represents the home seller in a real estate transaction.

Multiple Listing Service (MLS)

Privately owned databases that allow real estate professionals to share information with each other and, in doing so, facilitate collaboration between real estate brokers representing buyers and those representing sellers. MLSs are operated by local real estate associations, and consumers can typically view MLS listings online.

Preapproval

An assessment of what a mortgage company might lend you based on a preliminary review of your credit, debt, income and assets available for a down payment. Sellers typically won’t accept an offer without a preapproval letter included.

Prequalification

A more casual conversation (in comparison with preapproval) about how much you might be able to afford, based on an estimate of your credit scores, earnings and down payment amount.

Purchase agreement

Also called a purchase or sales contract, this is a legal document detailing the price and conditions for the home you’ve agreed to buy. The typical contract includes information about the property, down payment, earnest money, closing date and contingencies.

Real estate owned (REO)

When a house goes into foreclosure, it’s repossessed and sold so the lender can recoup the money they loaned the former homeowner. In cases where the bank who executed the foreclosure also purchases the home in the foreclosure sale, the property is considered “real estate owned.” The term also applies to homes owned by a bank because the homeowner used a deed-in-lieu of foreclosure.

During the loan process: Mortgage terms to know

As you nail down the details of your loan it may feel like rules, regulations and acronyms are flying everywhere. The mortgage process can be very complex, but if you take the time to learn unfamiliar terms as they come up, you’ll quickly get into the swing of things. Your lender should also be available to explain any details about your loan that aren’t clear.

Adjusted gross income (AGI)

Earnings before taxes, but after certain types of deductions (such as health insurance premiums, student loan payments or contributions to tax-advantaged retirement accounts) are made.

Amortization

Loans that amortize are structured so that if you make all of the payments over the term, the loan is fully paid off. While it may be counterintuitive, some loan types actually allow the balance you owe to grow, even if you make all of your scheduled payments. Other loans, like balloon mortgages, may require a lump sum at the end of the loan term.

Appraisal

An analysis by a professional appraiser comparing other sales of nearby homes to estimate a home’s value. Most purchase contracts include an appraisal contingency, which allows a buyer to back out if the appraisal returns a market value that doesn’t at least match the sales price.

Annual percentage rate (APR)

A measure of closing costs including points, origination fees and other credit charges included in mortgage financing and expressed as a percentage. Because it includes more costs, the APR on a given loan is usually higher than the interest rate.

Automated underwriting system (AUS)

A technology platform that allows lenders to approve or deny borrowers automatically, based on a computer program’s analysis of a borrower’s loan application data.

Basis points (BPS or ‘bips’)

Numbers used in finance to represent interest rates in an absolute way, rather than the relative way they’re usually represented when given as a percentage. You’ll often encounter basis points when reading about how changes in the market affect mortgage rates.

Closing costs

Upfront fees charged to originate a mortgage, typically about 2% to 6% of the loan amount. The closing costs are detailed on the initial loan estimate — provided to borrowers within three business days after applying for a mortgage — and again on a closing disclosure form provided three business days before closing on the home purchase.

Combined loan-to-value (CLTV) ratio

A number that compares the principal balances of all loans secured by a home to the value of the home. The number used for the home’s value is the purchase price or appraised value, whichever is less.

Conventional mortgage

One of several types of loan programs that aren’t insured by any government agency. Allows for down payments as low as 3% with a minimum 620 credit score.

Credit score/credit report

A credit score is a number that tells lenders how risky it may be for them to take you on as a borrower. A credit report evaluates your credit history, and the results of the data are calculated into a credit score. Lenders have minimum credit score requirements, depending on the loan program you use.

Debt-service coverage ratio (DSCR)

This ratio compares a business’ cash flow to its debts in order to help lenders assess the financial health of a business seeking a commercial real estate loan. Some lenders may have DSCR requirements in order to qualify a borrower for a loan.

Debt-to-income (DTI) ratio

A measure of the relationship of your monthly debt (including your new mortgage payment) to your monthly earnings before taxes. The Consumer Financial Protection Bureau (CFPB) recommends a DTI ratio of 43% or less.

Down payment

The upfront cash a buyer pays — as a percentage of the sales price — toward the purchase of a home. Some home loan programs don’t require a down payment.

Escrow account

A savings account set up by your lender to collect and pay property taxes, homeowners insurance and mortgage insurance as they come due.

FHA loan

A mortgage insured by the Federal Housing Administration (FHA), which allows for more lenient borrowing guidelines than conventional loans. For example, you can have a credit score of 500 to 579 and a 10% down payment, or a score of at least 580 with as little as 3.5% down. However, FHA loans will require two types of mandatory mortgage insurance: an upfront mortgage insurance premium (UFMIP) and an annual mortgage insurance premium (MIP).

Fixed-rate mortgage

A mortgage with an interest rate that stays the same for the life of the loan.

Lender’s title insurance

Lenders require title insurance to protect them against financial loss if any ownership claims arise against the property (such as ownership disputes, past judgments or liens).

Loan estimate

A three-page document outlining all of the costs and risks associated with getting a mortgage. Lenders are required to provide a loan estimate to a borrower within three days of receiving a mortgage application.

Loan-to-value (LTV) ratio

A ratio of the amount borrowed compared to a home’s value. Lenders set LTV limits on some loans. For example, conventional loans usually have a 97% LTV maximum, meaning you have to make a 3% down payment, at minimum, to be approved for the loan.

Mortgage broker

A licensed mortgage professional who acts as an intermediary between several different lenders to provide options to a buyer seeking financing. Mortgage brokers charge a fee between 1% and 17% of the loan balance, so they may not be the most economical choice for individual homebuyers who can go directly to lenders without a middle man.

Mortgage lender

A company that processes, underwrites and funds a home loan. The lender may or may not manage the loan after closing; in cases where they don’t, this is done by a loan servicer.

Origination fee

A fee (r group of fees) paid to a lender for processing and funding a mortgage. The origination fee may be itemized or charged as a percentage of the loan amount.

Owner’s title insurance

Homebuyers may opt to purchase an owner’s title insurance policy to protect themselves from ownership claims or disputes. Unlike lender’s insurance — which protects the lender for the life of the loan — owner’s title insurance protects the homeowner against financial losses for as long as you own the home.

PITI

A mortgage term short for principal, interest, taxes and insurance, which are the four key parts of a monthly mortgage payment.

Property inspection waiver (PIW)

Allows a property to qualify for a mortgage without a home appraisal.

Private mortgage insurance (PMI)

Insurance paid for by a borrower to cover the lender’s financial risk. If the borrower defaults on the loan, the insurance pays the lender. PMI is typically required on a conventional loan where the buyer has put down less than 20%, but it can be canceled once 20% equity is reached.

Rate lock

A written promise from a lender to give you a specific interest rate. The guarantee lasts for a set period of time prior to closing. Most rate lock periods are 60 days or less.

Reverse mortgage

Also known as a home equity conversion mortgage (HECM), a reverse mortgage allows homeowners over the age of 62 to borrow money against their home equity without making monthly payments.

Settlement service provider list (SSPL)

A list of providers that a buyer can use as they close on their loan (with “settlement” being another name for the mortgage closing process). The law requires lenders to notify borrowers about which services related to settlement they are able to shop for and to provide a list of providers of that service.

Title vesting

Legal rights related to ownership of a home. How a home is titled affects what happens to it if there’s an ownership change or an owner dies.

USDA loan

A loan program guaranteed by the U.S. Department of Agriculture (USDA) that helps low- to moderate-income homebuyers finance homes in designated rural areas of the country.

VA loan

A mortgage guaranteed by the U.S. Department of Veterans Affairs (VA) for active-duty military servicemembers, veterans and eligible spouses. Flexible VA loan qualifying requirements include no down payment or mortgage insurance.

Closing: Terms used in mortgage settlement

The finish line is in sight! Once your offer has been accepted and you’ve put down your earnest money, you’ll go through the closing (or “settlement”) process. Here are some useful terms you may encounter as you close on your loan.

Closing agent

Depending on where you live, an attorney or escrow officer will serve as the “closing agent.” It’s their job to coordinate the closing, as well as to collect and disburse the money from each party to the other.

Closing date

Date on which the buyer and seller meet to finalize the sale of the home. Certain key pieces of the closing process may be tied to the closing date. For example, the funds each party brings to the closing must usually be in the escrow account on or before the closing date. The closing date is agreed upon by the buyer and seller and put in the purchase contract; however, the date can be changed if everyone involved agrees to the change.

Closing disclosure

A five-page form that puts in writing all of the costs and fees due at closing. Lenders must provide the closing disclosure at least three business days before closing. Any errors in the terms of the sale should be corrected before closing on the loan, so review the document carefully.

Walk-through

This final inspection of the home by the buyer takes place before closing and is a customary part of buying and selling homes. During this inspection — which is also known as a “final walk-through” — a buyer ensures that agreed-upon repairs have been completed and the home is in move-in ready condition.

 

Today's Mortgage Rates

  • 5.95%
  • 5.76%
  • 3.31%
Calculate Payment
Advertising Disclosures Terms & Conditions apply. NMLS#1136

Recommended Reading