Buying a home often means learning a lot of unfamiliar real estate and mortgage terms. This glossary is designed to help Denver-area buyers understand common financial, lending, contract, and closing language used during the home buying process.
A
adjustable-rate mortgage (ARM)
A mortgage whose interest rate changes periodically based on changes in a specified index.
adjustment date
The date on which the interest rate changes for an adjustable-rate mortgage.
adjustment period
The amount of time between interest rate adjustments on an adjustable-rate mortgage.
amortization
The repayment of a loan through scheduled installments of principal and interest over time.
amortization term
The total length of time required to fully repay a loan. A 30-year mortgage has an amortization term of 360 months.
annual percentage rate (APR)
The yearly cost of a mortgage expressed as a rate. APR includes interest and certain loan costs, making it useful when comparing loan offers.
appreciation
An increase in the value of a property over time.
asset
Anything of monetary value owned by a person, such as savings, investments, or real estate.
assignment
The transfer of a mortgage or contract right from one party to another.
assumable mortgage
A mortgage that may be taken over by a buyer when a home is sold, subject to lender approval and loan terms.
assumption
The transfer of a seller’s existing mortgage obligation to a buyer.
assumption fee
A lender fee charged when a mortgage is assumed by a new borrower.
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B
balance sheet
A financial statement showing assets, liabilities, and net worth at a specific point in time.
balloon mortgage
A loan with regular payments for a period of time but a large lump-sum balance due before the loan would otherwise be fully paid off.
balloon payment
The large final payment due at the end of a balloon mortgage.
basis point
One one-hundredth of one percent. Fifty basis points equals 0.50%.
binder
A preliminary agreement, often backed by earnest money, showing a buyer’s intent to purchase property.
biweekly payment mortgage
A mortgage paid every two weeks instead of monthly, which can reduce interest costs over time.
blanket mortgage
A mortgage secured by more than one parcel or unit of real estate.
breach
A violation of a legal obligation or contract term.
bridge loan
Short-term financing that helps a buyer purchase a new home before the current home is sold.
broker
A licensed professional who brings parties together and assists with negotiating a real estate or loan transaction.
buydown
A financing arrangement in which money is paid upfront to reduce the borrower’s interest rate temporarily or permanently.
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C
cap
A limit on how much an adjustable-rate mortgage interest rate or payment may increase or decrease.
capital improvement
A permanent improvement that adds value to a property or extends its useful life.
cash-out refinance
A refinance in which the borrower receives cash from the loan proceeds after paying off the existing mortgage and closing costs.
certificate of deposit (CD)
A deposit account with a fixed interest rate and maturity date, often subject to penalties for early withdrawal.
certificate of eligibility
A document issued by the federal government confirming a veteran’s eligibility for a VA loan.
certificate of title
A statement from a title company or attorney indicating the current status of title ownership.
chain of title
The history of recorded ownership transfers affecting a property.
clear title
Title that is free from liens or unresolved ownership questions.
closing
The final step in a real estate transaction when documents are signed, funds are transferred, and ownership changes hands.
closing costs
Expenses paid at closing in addition to the purchase price, such as lender fees, title fees, prepaid taxes, insurance, and recording fees.
closing statement
The final accounting of all charges and credits in a real estate transaction.
cloud on title
A title issue or possible defect that may affect ownership or transferability.
collateral
An asset pledged to secure repayment of a loan.
combined loan-to-value (CLTV)
The total of all mortgage balances on a property divided by the property’s value.
commitment letter
A lender’s written statement outlining the terms under which it agrees to make a loan.
common areas
Shared portions of a community or building, such as hallways, pools, green space, or clubhouses.
comparables
Recently sold properties similar to a subject property, used in pricing and appraisal analysis.
conforming loan
A mortgage that meets current Fannie Mae and Freddie Mac size and underwriting standards.
construction loan
Short-term financing used to fund the building of a home or major improvement project.
consumer reporting agency
An organization that compiles credit information used by lenders to evaluate borrowers.
contingency
A condition that must be satisfied for a contract to remain binding, such as inspection or financing.
conventional mortgage
A mortgage not insured or guaranteed by the federal government.
cooperative (co-op)
A form of ownership in which residents own shares in a corporation that owns the property.
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D
deed
The legal document that transfers ownership of real property.
deed in lieu of foreclosure
A deed voluntarily given by a borrower to a lender to avoid foreclosure.
deed of trust
A document used in some states instead of a mortgage, involving a borrower, lender, and trustee.
default
Failure to meet the obligations of a loan or contract, such as missing mortgage payments.
delinquency
Failure to make payments when due.
depreciation
A decline in value over time.
due-on-sale clause
A mortgage provision allowing the lender to require full payoff if the property is sold or transferred.
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E
earnest money deposit
A deposit showing that a buyer is serious about purchasing a property.
easement
A legal right allowing someone else limited use of part of a property.
effective age
An appraiser’s estimate of the condition and useful age of a building, which may differ from actual age.
effective gross income
Income considered for lending purposes, including regular salary and other stable qualifying income.
electronic funds transfer (EFT)
The movement of money electronically between accounts.
encumbrance
A claim or restriction affecting title, such as a mortgage, lien, easement, or deed restriction.
Equal Credit Opportunity Act (ECOA)
A federal law prohibiting discrimination in lending.
equity
The difference between a property’s market value and the debt owed against it.
escrow
Money, documents, or property held by a neutral third party until certain conditions are met.
escrow account
An account used to hold funds for taxes, insurance, or other property-related costs.
escrow analysis
A periodic review of an escrow account to determine whether deposits are sufficient.
escrow disbursements
Payments made from an escrow account for taxes, insurance, and related expenses.
escrow payment
The portion of a monthly mortgage payment set aside for taxes and insurance.
estate
A person’s legal ownership interest in real property, or the total property owned at death.
eviction
The legal removal of an occupant from property.
examination of title
A review of public records to determine the ownership history and condition of title.
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F
Fair Credit Reporting Act
A consumer protection law regulating the use and correction of credit report information.
fair market value
The price a willing buyer and willing seller would agree upon under normal conditions.
Fannie Mae
A government-sponsored enterprise that buys mortgages from lenders to support the mortgage market.
Federal Housing Administration (FHA)
A federal agency that insures certain mortgage loans made by approved lenders.
FHA mortgage
A loan insured by the Federal Housing Administration.
finder’s fee
A fee paid for locating a loan or transaction opportunity.
fixed-rate mortgage (FRM)
A mortgage with an interest rate that remains unchanged for the full loan term.
flood insurance
Insurance covering flood-related damage, often required in designated flood zones.
foreclosure
The legal process by which a lender takes action to recover a property after borrower default.
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G
good faith estimate
An estimate of settlement or loan costs a borrower is likely to incur. Modern loan disclosures may use different forms, but the concept remains similar.
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H
hazard insurance
Insurance protecting a property against certain risks such as fire, wind, or vandalism.
home equity line of credit (HELOC)
A revolving credit line secured by the borrower’s home equity.
home equity loan
A loan secured by home equity, often with fixed payments and a fixed term.
housing ratio
The ratio of monthly housing expense to gross monthly income, sometimes called the front-end ratio.
HUD
The U.S. Department of Housing and Urban Development.
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I
index
A published interest rate used to determine changes to an adjustable-rate mortgage.
impound account
Another term for an escrow account used to collect taxes and insurance payments with the mortgage payment.
interest-only loan
A loan that allows payments of interest only for a specified period before principal repayment begins.
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J
jumbo mortgage
A mortgage that exceeds current conforming loan limits and may have different underwriting requirements.
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L
lender
The bank, credit union, mortgage company, or other institution making the loan.
lien
A legal claim against property for a debt.
lifetime cap
The maximum interest rate increase allowed over the life of an adjustable-rate mortgage.
loan-to-value ratio (LTV)
The mortgage balance divided by the property’s appraised value or purchase price, whichever is applicable under lender guidelines.
lock period
The period of time a lender guarantees a specific interest rate.
lock-in
A written agreement to hold a specific loan rate and terms for a stated time period.
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M
margin
The number of percentage points a lender adds to an ARM index to calculate the new rate.
maturity date
The date on which the final loan balance becomes due.
mortgage
A legal agreement that gives a lender a claim against real property as security for repayment of a loan.
mortgage disability insurance
Insurance intended to make mortgage payments for a borrower who becomes disabled and cannot work.
mortgage insurance
Insurance protecting the lender against loss if a borrower defaults. It is commonly required on lower-down-payment loans.
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N
negative amortization
A situation in which monthly payments are not large enough to cover the interest due, causing the loan balance to increase.
net worth
The difference between total assets and total liabilities.
non-conforming loan
A mortgage that does not meet current conforming loan standards, often including jumbo loans.
note
The borrower’s written promise to repay a loan under stated terms.
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O
origination fee
A lender fee charged for processing and creating a mortgage loan.
owner’s title insurance
Title insurance that protects the buyer’s ownership interest against certain title defects.
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P
PITI
Principal, Interest, Taxes, and Insurance — often used to describe a full monthly housing payment.
points
Upfront fees paid to a lender, often expressed as a percentage of the loan amount. One point equals 1% of the loan amount.
pre-approval
A lender’s review of a buyer’s financial information resulting in a conditional statement of borrowing capacity.
prepaid items
Costs collected at closing in advance, such as homeowners insurance, interest, or property taxes.
prepayment penalty
A fee charged for paying off a loan earlier than allowed under the loan terms.
prequalification
An initial estimate of borrowing ability based on information provided by the buyer, often less thorough than pre-approval.
principal
The original loan amount borrowed, excluding interest.
private mortgage insurance (PMI)
Mortgage insurance generally required on certain conventional loans with lower down payments.
property taxes
Taxes assessed by local government based on the value of real property.
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Q
qualifying ratio
A lender guideline comparing income to housing costs and other debts when evaluating loan approval.
quitclaim deed
A deed transferring whatever ownership interest the grantor may have, without warranties of title.
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R
rate lock
An agreement in which a lender commits to a specific interest rate for a limited period.
real estate owned (REO)
Property owned by a lender after an unsuccessful foreclosure sale.
recording fees
Fees charged by a government office to record documents in the public records.
refinance
Replacing an existing mortgage with a new loan, often to change rate, term, or cash position.
reserves
Funds a borrower has available after closing, often measured in months of mortgage payments.
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S
second mortgage
A loan secured by a property that is subordinate to the first mortgage.
seller concession
Money or value provided by the seller toward a buyer’s closing costs or other allowed expenses.
settlement
Another term for closing.
survey
A professional measurement and drawing showing property boundaries and certain improvements.
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T
title
A person’s legal ownership rights in a property.
title insurance
Insurance protecting against certain title defects, liens, or ownership disputes.
title search
A review of public records to determine ownership history and discover possible title problems.
transfer tax
A tax charged in some locations when property ownership is transferred.
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U
underwriting
The lender’s process of evaluating a borrower, property, and loan risk before final approval.
upfront costs
Expenses paid before or at closing, such as appraisal fees, inspection fees, or earnest money.
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V
VA loan
A mortgage program guaranteed by the U.S. Department of Veterans Affairs for eligible borrowers.
verification of employment (VOE)
Confirmation from an employer of a borrower’s employment status and income.
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Need help applying these terms to a real home purchase? Contact The Kearns Team and we’ll help you understand the buying process step by step.