Glossary of Key Mortgage and Foreclosure Terms
from HomePath Buyers Guide by Fannie Mae

While working with your mortgage company, you may come in contact with terms or phrases that are unfamiliar. The financial language you need to understand in order to make informed decisions about your home loan includes the following:

Adjustable-Rate Mortgage (ARM): A mortgage loan with an interest rate that can change at any time, usually in response to the market or Treasury Bill rates. These types of loans usually start off with a lower interest rate comparable to a fixed-rate mortgage.

Amortize: Paying off a debt by making regular installment payments over a set period of time, at the end of which the loan balance is zero.

Balloon Mortgage: A mortgage loan with low interest payments initially, but then requires one large payment due upon maturity (for example, at the end of seven years).

Buy-down Mortgage: A mortgage loan in which one party pays an initial lump sum in order to reduce the borrower's monthly payments.

Conventional Financing: Mortgage financing which is not insured or guaranteed by a government agency such as FHA, VA or the USDA.

Collections: The efforts a lender takes to collect past-due payments.

Convertible ARM: An adjustable-rate mortgage loan that can be converted into a fixed-rate mortgage during a certain time period.

Deed: A legal document under which ownership of a property is conveyed.

Delinquency: Failure to make a payment when it is due. A loan is generally considered delinquent when it is 30 or more days past due.

Equity: Ownership interest in a project after liabilities are deducted – also referred to as your assets.

Escrow: A lender-held account where a homeowner pays money toward taxes and insurance on a home.

Escrow Account: The actual account where the escrow funds are held in trust.

Fixed-Rate Mortgage: A mortgage loan in which the interest rate remains the same for the life of the loan.

FHA Financing: Home purchase financing offered through the Federal Housing Administration.

Foreclosure: The legal process by which a property may be sold, with the proceeds of the sale applied to the mortgage debt. A foreclosure occurs when the loan becomes delinquent because payments have not been made or when the borrower is in default for a reason other than the failure to make timely mortgage payments.

Interest-Only Mortgage: A mortgage where the borrower pays only the interest on the loan for a specified amount of time.

Investment Property: A property not considered to be a primary residence that is purchased by an investor in order to generate income, gain profit from re-selling or to gain tax benefits.

Loan Origination Fees: Fees paid to your mortgage lender for processing the mortgage application. This fee is usually in the form of points. One point equals 1% of the mortgage amount.

Lock-In Rate: A written agreement guaranteeing a specific mortgage interest rate for a certain amount of time.

Mortgage: A legal document that pledges property to a lender as security for the repayment of the loan. The term is also used to refer to the loan itself.

Mortgage Broker: An independent finance professional who specializes in bringing together borrowers and lenders to complete real estate mortgages.

Mortgage Insurance: Insurance that protects lenders against losses caused by a borrower's default on a mortgage loan. Mortgage insurance (or MI) typically is required if the borrower's down payment is less than 20 percent of the purchase price.

Mortgage Lender: The lender providing funds for a mortgage. Lenders also manage the credit and financial information review, the property and the loan application process through closing.

Pre-Approval Letter: A letter from a mortgage lender indicating that you qualify for a mortgage of a specific amount. It also shows a home seller that you're a serious buyer.

Pre-Qualification Letter: A letter from a mortgage lender that states that you're pre-qualified to buy a home, but does not commit the lender to a particular mortgage amount.

Refinance: Paying off an existing loan (such as a balloon mortgage) with a newer, usually lower-rate loan.

Servicer: A firm that performs functions in support of a mortgage, including collecting mortgage payments, paying the borrower's taxes and insurance and generally managing borrower escrow accounts.

Title: The documented evidence that a person or organization has ownership of real property.

Title Insurance: Insurance that protects lenders and homeowners against legal problems with the title.

Underwriting: The process a lender uses to determine loan approval. It involves evaluating the property and the borrower's credit and ability to pay the mortgage.

Uniform Residential Loan Application: A standard mortgage application your lender will ask you to complete. The form requests your income, assets, liabilities, and a description of the property you plan to buy, among other things.