Mortgage glossary

An insurance settlement basis equal to the replacement cost of damaged property minus depreciation.

Worth checking on a Florida policy. An actual cash value roof settlement on an older roof can fall a long way short of what replacing it costs.

See also: replacement cost

A mortgage whose interest rate can change at set intervals, based on a published index plus a fixed margin. It usually opens with a rate below the comparable fixed-rate loan.

The initial rate is the headline; the caps are the substance. Ask what the rate can do at the first adjustment, at each one after, and over the life of the loan.

See also: adjustment period, index, margin, rate cap, sofr

The interval between interest rate changes on an adjustable-rate mortgage. The first period runs from closing and is usually longer; later periods are commonly annual.

See also: adjustable rate mortgage

The schedule by which a loan is repaid over its term, with each payment split between interest and principal. Early payments are mostly interest; the balance shifts toward principal as the loan matures.

See also: amortization schedule, principal and interest

A table showing every scheduled payment over the life of the loan, and how each one divides between interest, principal and the remaining balance.

See also: amortization

An independent opinion of a property's value, prepared by a licensed appraiser for the lender, supported by recent sales of comparable properties.

Some programs also apply property condition standards through the appraisal, which is where older housing stock can run into trouble.

See also: market value, rent schedule

An increase in a property's market value, whether from market conditions or from improvements to the property itself.

A rate expressing the cost of borrowing including certain fees and charges, not just the interest rate. It exists so two offers can be compared on a more consistent basis.

APR and interest rate are different numbers, and which costs you less depends on how long you keep the loan. Neither is quoted on this site.

A qualifying method that converts eligible assets into a monthly income figure by dividing them over a number of months set by the lender.

It does not mean the assets are spent or pledged. It is a calculation, and the eligible asset types and the number of months both vary by lender.

See also: reserves, assets

What you own that has value — accounts, investments, property and the rest.

Not the same thing as equity. Equity is your ownership interest in one property after its debts; assets are everything you own.

See also: equity, reserves

An arrangement in which a buyer takes over primary responsibility for the seller's existing mortgage, on its existing terms.

Most conventional loans are not assumable. FHA and VA loans often are, subject to lender approval and the buyer qualifying — which matters more when existing loans carry rates below the current market.

A loan with payments calculated on a long schedule but a single large payment of the remaining balance due at an earlier maturity date.

Far less common in consumer mortgages than it once was. Post-2014 ability-to-repay and qualified mortgage rules restrict balloon features on most owner-occupied loans.

A loan that derives qualifying income from deposits into business or personal accounts over a defined period, with an expense factor applied, instead of from tax returns.

It is not a no-documentation loan. Credit, reserves, the property and the appraisal are underwritten as usual.

An arrangement in which money paid up front — by the buyer, the seller or a builder — reduces the interest rate, either for the first years of the loan or for its full term.

A temporary buydown lowers the payment for a set period and then it rises. Qualify yourself on the payment after it ends, not the one before.

See also: points

Your ability to make the payments — income and how stable it is, your assets, and what is left each month after housing costs and other obligations.

See also: debt to income

The total funds you need at closing: down payment, closing costs, prepaid items such as taxes and insurance, and any escrow set-up.

It is usually larger than the down payment alone, and it is the figure worth planning around.

See also: closing costs, down payment

The completion of the transaction, when documents are signed, funds are disbursed and ownership transfers. Also called settlement.

See also: closing agent, closing disclosure

The party who coordinates the closing — preparing and recording documents and disbursing funds. In Florida this is often a title company or a real estate attorney.

The costs of completing the transaction, separate from the price of the home: origination charges, title insurance, recording fees, prepaid taxes and insurance, and more.

See also: cash to close, closing disclosure

The five-page form giving the final terms and costs of the loan. You must receive it at least three business days before closing, so there is time to compare it against the Loan Estimate.

This replaced the HUD-1 Settlement Statement for most consumer mortgages in October 2015. Use those three days — that is what they are for.

See also: loan estimate, hud 1

Property pledged as security for a debt. On a mortgage, the collateral is the home.

See also: lien

A form of ownership in which you own your unit and share ownership of common elements through an association that maintains them.

Lenders underwrite the project as well as the borrower — its budget, reserves, insurance, owner-occupancy and litigation. In Florida, structural reserve requirements have made project approval a live issue on older coastal buildings.

The maximum loan amount eligible for purchase by Fannie Mae or Freddie Mac. The Federal Housing Finance Agency sets it annually, and it varies by county and by number of units.

A loan above the applicable limit becomes a jumbo loan, underwritten to the lender's own standards.

See also: jumbo loan

A record of your borrowing and repayment history, compiled by the credit bureaus and used by lenders to assess how you have handled credit.

See also: credit score

A number derived from your credit report that predicts the likelihood you will repay as agreed.

Mortgage lenders typically use older scoring versions than the free scores you see from a card issuer or an app, so the number a lender pulls can differ from the one you were looking at.

A general description of a borrower whose credit history and capacity support repaying the debt being considered.

Your monthly debt obligations measured against your gross monthly income. Lenders use it to assess capacity to repay.

See also: capacity, dscr

The legal instrument that transfers ownership of real property from one party to another.

Different from the mortgage. The deed conveys ownership; the mortgage pledges the property as security for a loan.

See also: title, mortgage

Assistance structured as a second mortgage with no monthly payment, repaid in full when you sell, refinance or pay off the first mortgage.

It reduces the cash you need at closing. It does not reduce what you eventually owe.

See also: forgivable second

The portion of the purchase price you pay yourself rather than borrow.

The "20% down" figure is a convention, not a requirement. Several programs allow far less, and VA and USDA loans allow none at all for eligible borrowers — though less down usually means mortgage insurance and a higher monthly cost.

See also: cash to close, loan to value, mortgage insurance

Rental income divided by debt service on an investment property. A ratio of 1.00 means the income exactly covers the debt service as the lender calculates it.

A DSCR loan is not a loan without underwriting. The lender substitutes this ratio for personal income documents, and still underwrites credit, reserves, the property, the appraisal and the ownership structure. Lenders also define both halves of the ratio differently.

See also: pitia, rent schedule

A deposit made with an offer to show the buyer is serious. It is held by an escrow agent and credited toward your costs at closing.

Whether you get it back if the deal falls through depends entirely on the contingencies in your contract — inspection, financing, appraisal — and on meeting their deadlines. Read those dates before you sign.

See also: escrow

Your ownership interest in a property: what it is worth, less what is owed against it.

Equity is not the same as your assets. Assets are everything you own; equity is your stake in one property after its debts.

See also: assets, appreciation, loan to value

An account your servicer uses to collect and pay property taxes and insurance on your behalf, usually funded monthly alongside the mortgage payment.

Escrow payments change when taxes or insurance change, which is why a Florida payment can move even on a fixed-rate loan.

See also: servicer

A mortgage made by an approved lender and insured by the Federal Housing Administration, part of HUD.

The loan comes from a lender, not from the government. No private company lends on the government's behalf.

See also: mortgage insurance

A mortgage whose interest rate stays the same for the life of the loan, so the principal and interest payment does not change.

The principal and interest portion is fixed. The full payment can still move, because taxes, insurance and association dues are not.

See also: adjustable rate mortgage, principal and interest

Programs for borrowers who do not have the residency status, Social Security number or U.S. credit history that standard programs assume, using other documentation instead.

It describes the borrower's status, not the purpose of the purchase. Foreign national buyers purchase primary residences and second homes as well as investment property.

Assistance structured as a second mortgage that is forgiven over a set period, usually while the home remains your primary residence.

Selling or refinancing early can make some or all of it repayable. It is not the same as a grant.

See also: deferred second

A signed statement from a donor confirming that money given toward your purchase is a gift and does not have to be repaid.

Lenders also trace the money. Expect to document where it came from and when it arrived, not just that a letter exists.

The former disclosure itemizing estimated mortgage costs and fees, given to applicants early in the process.

What replaced it: Replaced by the Loan Estimate in October 2015 for most closed-end consumer mortgages, under the TILA-RESPA Integrated Disclosure rule. The GFE is still used for some transactions outside that rule, including reverse mortgages.

See also: loan estimate

The portion of property insurance covering physical damage to the structure from covered perils.

See also: homeowners insurance, replacement cost

The FHA-insured reverse mortgage, and the most common type in the United States. It lets eligible homeowners aged 62 or older convert part of their home equity into loan proceeds without a monthly principal and interest payment.

You keep title to the home and you still have obligations: property taxes, homeowners insurance and association dues must stay current, the property must be maintained, and it must remain your principal residence. Failing those can make the loan due and payable.

See also: reverse mortgage, hecm counseling, non recourse, maturity event

A session with an independent HUD-approved counselor, required before you can complete an application for an FHA-insured reverse mortgage.

It is a consumer protection, not a formality, and the counselor does not work for the lender. Treat it as the moment to ask the questions you would otherwise ask the person selling you the loan.

See also: hecm

Using an FHA-insured reverse mortgage to buy a home rather than to borrow against one you already own, combining the loan proceeds with your own funds in a single transaction.

Often used to move to a home that suits later life without taking on a monthly principal and interest payment. The same obligations apply — taxes, insurance, maintenance and occupancy.

See also: hecm, reverse mortgage

A buyer's inspection of a property's condition — structure, roof, systems, and pest or moisture issues.

Different from the appraisal. The appraisal is for the lender and concerns value; the inspection is for you and concerns condition.

See also: appraisal

A policy covering damage to the structure, liability, and in most forms your personal belongings.

A standard homeowners policy does NOT cover flood. Flood is separate cover, through the National Flood Insurance Program or a private insurer, and in much of Florida it is the difference between being covered and not. Windstorm may also be excluded or separately deductible depending on the policy.

See also: hazard insurance, actual cash value, replacement cost

The former itemized settlement statement listing the final costs of a mortgage transaction for buyer and seller.

What replaced it: Replaced by the Closing Disclosure in October 2015 for most closed-end consumer mortgages, under the TILA-RESPA Integrated Disclosure rule. The HUD-1 is still used for some transactions outside that rule, including reverse mortgages.

See also: closing disclosure

The published rate an adjustable-rate mortgage tracks. The lender adds a fixed margin to the index to set your rate at each adjustment.

The index matters when the market moves. Most ARMs written today use SOFR or a Constant Maturity Treasury rate — LIBOR, which older material still names, was discontinued in 2023.

See also: adjustable rate mortgage, margin, sofr, libor

The cost of borrowing, expressed as a percentage of the amount borrowed.

A loan on which you pay only interest for a set period, after which payments rise to cover principal as well.

Your balance does not fall during the interest-only period, so you build no equity through payments. These features are restricted on most owner-occupied loans under ability-to-repay rules and are more often seen in investment and non-agency lending.

Property bought to generate rental income or resale profit rather than to live in.

Occupancy is a term of your loan, not a preference. Representing an investment purchase as a primary residence to get better pricing is occupancy fraud.

See also: dscr, rent schedule

A loan exceeding the conforming limit for the property's county and unit count, underwritten to the lender's own standards.

There is no fixed dollar figure that makes a loan jumbo — it depends on the county and the year.

See also: conforming loan limit

Your debts and ongoing financial obligations.

See also: debt to income

The London Interbank Offered Rate, formerly a common index for adjustable-rate mortgages.

What replaced it: Discontinued. Publication of the remaining USD LIBOR settings ceased on 30 June 2023, and loans that referenced it have moved to replacement rates — most commonly SOFR-based indices. Material still naming LIBOR as a current ARM index is out of date.

See also: sofr, index

A legal claim against property as security for a debt. A mortgage creates one.

See also: collateral, title

The three-page form setting out the estimated terms and costs of a mortgage, which a lender must provide within three business days of your application.

It is designed so offers can be compared like for like. Put two Loan Estimates side by side rather than comparing the rates you were quoted on the phone.

See also: closing disclosure, good faith estimate

The loan amount expressed as a percentage of the property's value. A larger down payment means a lower LTV.

See also: mortgage insurance, equity

The fixed percentage a lender adds to the index to set the rate on an adjustable-rate mortgage at each adjustment.

The index moves; the margin does not. Two ARMs on the same index can price quite differently because of it.

See also: index, adjustable rate mortgage

What a property would sell for between a willing buyer and a willing seller, neither under pressure. An appraisal is an opinion of it.

See also: appraisal, appreciation

The event that makes a reverse mortgage due and payable: the last surviving borrower dies, sells the home, or stops using it as a principal residence — or the borrower fails to meet the loan's obligations.

This is the part of a reverse mortgage worth understanding before anything else, because it is where the surprises are. An extended absence can trigger it, and so can unpaid property taxes or lapsed insurance.

See also: reverse mortgage, hecm, non borrowing spouse

The instrument pledging property as security for a loan. In everyday use, the loan itself.

See also: deed, lien

Insurance protecting the lender, not the borrower, where the down payment or equity is below a program's threshold.

Conventional private mortgage insurance can generally be removed once you reach the required equity. FHA annual premiums work differently and may last the life of the loan depending on the loan-to-value at origination. They are not the same product and should not be compared as though they were.

See also: loan to value, fha loan

A spouse who is not a borrower on a reverse mortgage. Federal rules provide protections allowing an eligible non-borrowing spouse to remain in the home after the borrower dies, if specific conditions are met and continue to be met.

The protections are real but conditional, and the conditions are strict. If one spouse will not be on the loan, make this the first thing you ask about, not the last.

See also: reverse mortgage, hecm, maturity event

A feature of FHA-insured reverse mortgages: when the loan becomes due and the home is sold to repay it, neither you nor your heirs owe more than the home is worth at that point, even if the balance has grown beyond it.

It protects against owing more than the house is worth. It does not mean the loan is free or that the balance stops growing — interest and insurance premiums accrue, and the equity left for heirs shrinks accordingly.

See also: hecm, reverse mortgage

The process of taking an application through underwriting to closing, and the fees associated with it.

Principal, interest, taxes, insurance and association dues — the full monthly carrying cost of a property rather than the loan payment alone.

Whether a DSCR lender measures debt service as PITIA or as principal and interest alone materially changes the ratio, particularly on an insured Florida property.

See also: dscr, principal and interest

Fees expressed as a percentage of the loan amount, where one point equals one percent. Discount points are paid to reduce the interest rate.

Points are worth it only if you keep the loan long enough to recover what you paid. Ask for the break-even period, in months.

See also: buydown, apr

A lender's assessment after reviewing documentation and credit, indicating what it expects to lend. It carries more weight with sellers than a pre-qualification.

It is not a loan commitment. The lender still underwrites the file and the property, and terms can change if your situation does.

The amount borrowed, and later the amount still owed, excluding interest.

See also: principal and interest, amortization

The part of a monthly payment that repays the loan and its interest, excluding taxes, insurance and association dues.

Most advertised payment figures show only this part, which is why a real Florida housing payment is usually larger than the number quoted.

See also: pitia

The maximum amount a reverse mortgage borrower can draw, determined by the age of the youngest borrower, the expected interest rate, and the lesser of the appraised value or the FHA lending limit.

Older borrowers and lower rates produce a higher limit. It is not a percentage you can look up in advance — it is calculated for your specific case.

See also: hecm, reverse mortgage

A reverse mortgage offered by a private lender rather than insured by FHA. Terms are set by the lender, and these products sometimes serve higher-value homes or borrowers who do not meet HECM requirements.

Not FHA-insured, so the HECM protections — including the non-recourse guarantee and the mandatory independent counseling — do not automatically apply. Ask specifically which protections your product carries.

See also: hecm, reverse mortgage, non recourse

The limit on how far the rate on an adjustable-rate mortgage can move — at the first adjustment, at each one after, and over the life of the loan.

Three numbers, not one. Ask for all three and work out the worst-case payment before you decide.

See also: adjustable rate mortgage, adjustment period

A written agreement fixing a quoted interest rate for a defined period while the loan is processed.

Locks have expiry dates and extension costs. Both are worth understanding before you lock.

Replacing an existing loan with a new one, whether to change the rate, the term, the loan type, or to draw on equity.

A lower rate alone does not make a refinance worthwhile. Weigh the costs against the monthly saving and how long you plan to keep the loan.

The appraiser's analysis of market rent for a property, used by lenders when qualifying investment property financing.

Some lenders use market rent, some use the rent on an existing lease, and some use the lower of the two.

See also: dscr, investment property

An insurance settlement basis equal to the cost of replacing damaged property without deducting for depreciation.

See also: actual cash value, homeowners insurance

Funds you still hold after closing, usually expressed as a number of months of housing payments, which a lender requires as a cushion.

Funds counted as reserves generally cannot also be counted as qualifying income under an asset depletion calculation.

See also: asset depletion, assets

A loan that lets an eligible older homeowner convert part of their home equity into proceeds without a monthly principal and interest payment. The balance grows over time and is repaid when the loan becomes due.

You keep title to the home — it is not a sale to the bank. But you remain responsible for property taxes, homeowners insurance, association dues and maintenance, and the home must remain your principal residence. Those obligations are where most reverse mortgage trouble actually starts.

See also: hecm, maturity event, non recourse, proprietary reverse mortgage

The company that administers your loan after closing — collecting payments, managing the escrow account and paying taxes and insurance from it.

Your loan can be sold or transferred to a different servicer. The terms of the loan do not change when it is.

See also: escrow

A sale in which the lender agrees to accept less than the balance owed, as an alternative to foreclosure.

The lender has to approve it, which takes time, and there can be tax and credit consequences. Worth independent advice before agreeing to one.

The Secured Overnight Financing Rate, published by the Federal Reserve Bank of New York. It is the most common index for adjustable-rate mortgages written today.

SOFR replaced LIBOR as the standard reference rate for new lending. Adjustable-rate loans typically use an averaged SOFR rather than the daily figure.

See also: index, libor, adjustable rate mortgage

A reverse mortgage payment option giving equal monthly payments for as long as at least one borrower lives in the home as a principal residence.

Different from a term payment, which runs for a fixed number of months and then stops.

See also: reverse mortgage, term payment

A reverse mortgage payment option giving equal monthly payments for a fixed period you choose.

Larger monthly payments than tenure, but they end on a date. Be clear about what happens after that date before choosing it.

See also: reverse mortgage, tenure payment

The legal evidence of ownership of real property.

Title insurance protects against defects in that ownership record — undisclosed liens, errors, forged documents. The lender's policy protects the lender, not you; an owner's policy is separate.

See also: deed, lien

The federal law requiring lenders to disclose the cost of credit in a standard form, including the APR, so borrowers can compare offers.

It is the reason you receive a Loan Estimate and a Closing Disclosure, and the reason advertising a specific rate carries disclosure obligations.

See also: apr, loan estimate, closing disclosure

The lender's assessment of whether to make the loan: the borrower, the property, the documentation and the risk, measured against the program's guidelines and the lender's own overlays.

No mortgage program skips underwriting. Programs described as "no income verification" change what is documented, not whether the file is reviewed.