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Home Loan Glossary

Florida Home Buying & Mortgage Glossary


A buyer’s or seller’s agreement to enter into a contract and be bound by the terms of the offer.

Additional principal payment

A payment made by a borrower of more than the scheduled payment to reduce the principal and corresponding interest.

Adjustable-rate mortgage (ARM)

A mortgage in which your interest rate and monthly payments may change periodically during the life of the loan, based on the fluctuation of an index. Lenders may charge a lower interest rate for the initial period of the loan. Most ARMs have a rate cap that limits the amount the interest rate can change, both in an adjustment period and over the life of the loan. Also called a variable-rate mortgage.


The steady reduction in the principal amount owed on a debt. During the earlier years of the loan, most of each payment is applied toward the interest owed. During the final years of the loan, payment amounts are applied almost entirely to the remaining principal balance.

Annual adjustment cap

A limit on how much the variable interest rate on a loan can go up or down each year.

Annual percentage rate (APR)

The annual cost of a loan to a borrower. Like an interest rate, the APR is expressed as a percentage. Unlike an interest rate, however, it includes other charges or fees to reveal the total cost of the loan. The Federal Truth in Lending Act demands that every consumer loan agreement disclose the APR.

Application fees

Nonrefundable fees paid when you apply for your loan. These fees may include charges for items such as, for example, a credit profile or a property appraisal.

Appraisal or appraised value

An updated estimate of the value of a property. When made in connection with an application for a loan secured by a home, a licensed appraiser usually performs the appraisal.


An increase in the value of property over time. Important factors in a home’s appreciation are its location, condition, and the selling price of similar homes in the area.

Assessed Value

The value of a property established by the municipal tax assessor. The assessed value is used to determine property taxes.


The method of transferring a right or contract, such as the terms of a loan, from one person to another.

Bridge loan

A kind of mortgage financing between the termination of one loan and the start of another loan.


A limit on how much a variable interest rate can increase. Many adjustable-rate mortgages have both annual (or semiannual) rate caps and lifetime caps.

Cash available for closing

Borrower funds that are available to include down payment and closing costs

Ceiling rate

The maximum interest rate that can accrue on a variable rate loan or adjustable-rate mortgage (ARM).


The time and place, at which all loan documents are signed, dated, and notarized.  

Closing costs

Closing costs, also known as settlement costs, are the costs incurred when obtaining your loan.


An additional person who assumes equivalent responsibility for repayment of a loan and is fully compelled under the terms of the loan. This individual also has equal rights to the proceeds of the loan too


An asset, such as a car or a home, used for securing the repayment of a loan. The borrower risks losing the asset if the loan is not repaid.

Comparable (comps)

Properties similar to the property under consideration for a mortgage that have approximately the same size, location and amenities and have recently been sold. Comparables help an appraiser determine the fair market value of a property.

Conforming loan

A mortgage loan that has the standard features as defined by (and is eligible for sale to) Fannie Mae and Freddie Mac.

Construction loan

A short-term interim loan for financing the cost of home construction. The lender makes payments to the builder at periodic intervals as the work progresses.


A specified condition in a sales contract that must be satisfied before the home sale can occur. When buying a home, the 2 most common contingencies are that the house must pass inspection and that the borrower must be approved for a loan.

Conventional loan

A home loan that is not insured or guaranteed by the federal government. A conventional loan can be for conforming or non-conforming loan amounts.

Convertible ARM

An adjustable-rate mortgage (ARM) that can be converted to a fixed-rate loan under specified conditions.


A second person who signs your loan and assumes equal responsibility for payment of the loan but receives no benefit from the loan proceeds.

Credit monitoring service

A service that offers the benefit of early detection of unauthorized activity in order to limit the amount of financial damage that a person may suffer at the hands of an identity thief.

Credit report

A record of an individual’s debts and payment habits. It helps a lender determine whether or not a potential borrower is a good business risk. The 3 major credit bureaus that provide credit reports are Equifax, Experian and TransUnion and you are legally entitled to receive 1 free report each year from each of these agencies.

Credit risk

The likelihood that a borrower will pay their obligations as agreed. Borrowers who pay as agreed pose less credit risk to lenders.

Credit score

A number that rates the quality of an individual’s credit. The number helps predict the relative likelihood that a person will repay a credit obligation, such as a mortgage loan. In general, the higher your credit score, the more likely you are to be approved for and to pay a lower interest rate on a loan.


A person or business from whom you borrow or to whom you owe money.


The likely ability of a borrower to repay debt.

Debt consolidation

A single loan to pay off multiple debts, usually over a longer term. This is a popular use for a home equity line of credit.

Debt-to-income ratio

Your total monthly debt payments (for example: loans, credit cards and court-ordered payments) divided by your gross monthly income before taxes and expressed as a percentage.

Deed (warranty or quit-claim)

A document that legally transfers ownership of real estate from a seller to a buyer and delivered to the buyer at closing. Before making a loan, a lender will usually require a title search or a title report to make sure the borrower legally owns the real estate that is being used to secure the loan.


Failure to make mortgage payments on time or to meet other terms of a loan. Default can lead to foreclosure.


Failure to make payments on time.

Down payment

The amount of cash you pay toward the purchase of your home to make up the difference between the purchase price and your mortgage loan. Down payments often range between 5% and 20% of the sales price depending on many factors, including your loan, your lender and your credit history.

Earnest money

A deposit made toward a down payment as a sign of good faith. The deposit is typically made when a purchase agreement is signed.


The difference between the fair market value (appraised value) of your home and your outstanding mortgage balances and other liens.


Funds deposited with a third party, to be held until a specific date is reached and/or a specific condition is met.

Escrow account

An escrow account is created at no cost to you to hold money to pay your homeowners insurance and property taxes on your behalf. We obtain information to determine the yearly insurance and tax amounts due on the property and include those amounts in your contractual payments to eliminate a large one-time expense to you. Escrow funds received as part of contractual payments are placed into an escrow account. When an insurance or property tax bill is received, escrow funds collected over time in the escrow account are used to pay these bills.


Fair Credit Reporting Act (FCRA)

Law passed by Congress to give borrowers certain rights when dealing with consumer reporting agencies, or credit bureaus. All credit bureaus are required to provide accurate credit histories to authorized businesses for use in evaluating applications for insurance, employment, credit or loans. Learn more about the FCRA

Fair market value

The likely selling price of a home. The fair market value is usually determined by an appraisal.

Fannie Mae

Federal National Mortgage Association, a government-sponsored enterprise that buys and securitizes mortgages for resale in the secondary market. Visit the Fannie Mae website

Federal Housing Administration (FHA)

An agency of the Department of Housing and Urban Development. The FHA provides mortgage insurance for certain residential mortgages. It also sets standards for underwriting these mortgages and for construction of homes secured by these mortgages. Visit the FHA website

Fee Simple

Clear and absolute ownership of a piece of property. The fee simple owner of a property has the right to use the land in any way desired, for example: build on it, sell it or lease it.

FHA home loan

A government insured mortgage by the Federal Housing Administration (FHA). FHA mortgage insurance protects the money lender (not the borrower) if a borrower defaults on the FHA loan.


An acronym for Fair Isaac Corporation, which develops the mathematical formulas used to produce credit scores for assessing credit risk. FICO scores fall between a low of 300 and a high of 850.

Finance charge

The cost of consumer credit expressed as a dollar amount. It includes the amount of interest you will pay during the terms of the loan, origination points and certain other items.

First mortgage

A mortgage that is the primary lien against a property.

Fixed-rate mortgage

A home loan with a preset fixed interest rate for the entire duration of the loan. For example, a 30-year fixed rate mortgage.

Flood insurance

Insurance that protects against loss due to floods. When available, this type of insurance is mandatory by law when a property is typically located in low-lining areas, oceanfront, and rivers.


A period during which your monthly loan payments are temporarily suspended or reduced. You may qualify for forbearance if you are willing but unable to make loan payments due to certain types of financial difficulties. During forbearance, principal payments are deferred but interest persists to accrue.


A legal process in which property securing a defaulted loan is sold by the lender in order to repay a borrower’s loan. The amount paid by a buyer at the foreclosure may not be enough to fully repay the loan and the borrower may continue to owe the lender the difference.

Freddie Mac

A government-sponsored enterprise that buys and securitizes mortgages for resale in the secondary market. Visit the Freddie Mac website

Funding date

The date on which the proceeds from a loan are available to or paid for the benefit of the borrowers.

Good faith estimate (GFE)

An itemized list of certain estimated costs associated with a home loan that the lender is required to provide to the borrower within 3 business days of the application.

Government Insured loan

A loan that is insured by the Federal Housing Administration (FHA), guaranteed by the Department of Veterans Affairs (VA) or guaranteed by the Rural Housing Service (RHS). The insurance protects the lender (not the borrower) if a borrower defaults on the loan.

Home equity line of credit (HELOC)

A home equity line of credit secured by the borrower's residence. The typical HELOC term is 30 years: a 10-year draw period followed by a 20-year repayment period. A HELOC is often used for home improvements, debt consolidation or other major expenses.

Homeowners insurance

Insurance to protect your home against damage from fire, hurricanes, and other catastrophes. Homeowners insurance also covers you against theft and vandalism, as well as personal liability in case someone is hurt or injured on your property. A lender will likely require you to name it as a payee under the insurance if you need to make a claim.

Installment loan

A loan that is repaid in equal payments, known as installments.


A contract that provides compensation for specific losses in exchange for a periodic payment. An individual contract is known as an insurance policy, and the periodic payment is known as an insurance premium.

Insurance binder

A certificate that states that insurance is provisionally in effect. Because the coverage will expire by a specified date, a permanent policy must be obtained before the expiration date.

Insured mortgage

A mortgage that is protected by an insurer in case of default. This is typical with FHA, VA, and USDA government loans.

Interest-only loan

A loan for which you pay only the interest due for a portion of the loan term. This lowers your periodic payment but does not decrease your principal balance on the loan.

Interest rate

The annual cost of a loan to a borrower, usually expressed as a percentage. The interest rate does not include fees charged for the loan.  

Jumbo loan

A jumbo or nonconforming loan. The amount of the loan exceeds standards that would make it eligible for sale to Fannie Mae and Freddie Mac. Certain geographical areas have temporary conforming loan limits higher than typical conforming limits. Lenders may charge additional fees and place certain restrictions due to the large loan amounts.

Line of credit

An agreement by a lender to extend credit up to a maximum amount for a specified time. In a home equity line of credit, the line of credit is secured by the borrower’s home and bears interest only on the money that is accessed (not the entire line of credit).

Loan commitment

A formal notification from a lender stating that the borrower’s loan has been conditionally approved and specifying the terms under which the lender agrees to make the loan.

Loan origination

The process by which a mortgage lender makes a home loan and records a mortgage against the borrower’s real property as security for repayment of the loan.

Loan term

Loan-to-value ratio (LTV)

The ratio between the outstanding principal amount of your loan, or your credit limit in the case of a line of credit, and the appraised value of your collateral. stated as a percentage.



The number of percentage points the lender adds to or subtracts from the index rate to determine the interest rate adjustments. The margin is constant throughout the life of the mortgage and is specified in the promissory note.

Maturity date

The day on which the outstanding principal, interest and fees on a loan must all be repaid.

Mortgage insurance

For conventional loans, insurance that protects the lender if you default on your loan. If your down payment is less than 20%, most lenders will require you to pay mortgage insurance. Also called private mortgage insurance (PMI).


Payment of the outstanding balance of a loan in full. Also, the amount required to pay the outstanding balance in full.


An amount paid to the lender, typically at closing, to lower (or buy down) the interest rate. One discount point equals one percentage point of the loan amount. For example, 2 points on a $100,000 mortgage would cost $2,000.


A lender’s conditional agreement or pre-approval to lend a specific amount of money to a homebuyer under a specified set of terms.


The process of providing financial and other information (such as employment history and proposed collateral) by a prospective borrower in order for the lender to preliminarily estimate how much the borrower may obtain for the purchase of a home. A prequalification is not a commitment to lend.

Principal & interest

The principal is the amount of money borrowed on a loan. The interest is the charge paid for borrowing money. Principal and interest account for the majority of your mortgage payment, which may also include escrow payments for property taxes, homeowner’s insurance, mortgage insurance and any other costs that are paid monthly, or fees that may come due.

Principal balance

The unpaid portion of the loan amount. The principal balance does not include interest or any other charges.

Principal payment

Portion of your monthly payment that reduces the principal balance of a home loan. This term also refers to prepayments you make to the principal balance.


The amount of interest on a loan, expressed as a percentage.

Rate lock

A commitment issued by a lender to a borrower guaranteeing a specific interest rate for a specified period of time. Rate lock periods are for a fixed number of days, and rate lock expiration occurs when that period has passed, subjecting the interest rate on the loan to market fluctuations since the date of the initial rate lock. When a rate lock expires, you will need to contact your lending specialist to establish a new rate lock prior to closing your loan.

Recording fee

A charge for a public official (typically a Registrar of Deeds or County Clerk) noting in the public record the terms of a legal document affecting title to real property such as a deed, a security instrument, a satisfaction of mortgage or an extension of mortgage.

Reduced documentation

A method used to determine income when qualifying a borrower for a loan. Borrower(s) provide their income, however no verification documentation is typically required.


Paying off your existing loan with the proceeds from a new loan, generally using the same property as collateral, in order to take advantage of lower monthly payments, lower interest rates or save on financing costs.


The amount of savings separate from the down payment, that a homebuyer sets aside in case of unforeseen events or emergencies. During the loan approval process, many lenders require reserves (typically the equivalent of 2 monthly mortgage payments) to be verified.

Right of first refusal

A provision in an agreement that requires the owner of a property to give another party the first opportunity to purchase or lease the property before he or she offers it for sale or lease to others.

Second home

A property occupied part-time by a person in addition to his or her primary residence.

Secured loans

Loans for which the borrower gives the lender a lien on property such as an automobile, boat, other personal property or real estate that will serve as collateral for the loan.


The property that will be pledged as collateral for a loan. If the borrower defaults, the lender can sell the collateral to satisfy the debt.


The number of years it will take to pay off a loan. The loan term is used to determine the payment amount, repayment schedule and total interest paid over the life of the loan.

Third-party fees

Fees charged for services rendered by parties other than the borrower or the lender. Such fees may include appraisal, credit report, title and flood certifications.


Written evidence of ownership in property.

Title company

The agency that will investigate a property’s title (or deed) for discrepancies or undiscovered liens and that will issue title insurance to the lender after the title is deemed clear.

Title insurance

Insurance that protects an interested party, either the owner or the lender, against issues that would affect legal ownership of the property.

Title search

An examination of records used to determine the legal ownership of property and all liens and encumbrances on it. Usually performed by a title company or attorney.

Transaction fee

The fee that may be charged each time you draw on your credit line.

Truth in Lending Act

A federal law requiring disclosure of credit terms using a standard format. This is intended to facilitate comparisons between the lending terms of different financial institutions.


The person who approves or denies a home loan, based on the lender’s underwriting and approval criteria.

VA loan

A mortgage that is guaranteed by the Department of Veterans Affairs (VA) for qualified veterans of U.S. military forces.

Vacation home

A vacation home is a single-family property that the borrower occupies in addition to his or her primary residence. The property cannot be considered income-producing and must not be part of a mandatory rental pool, but occasionally may be rented to friends and relatives. When property is classified as a second home, rental income may not be used to qualify the applicant. A 2- to 4-unit property is not eligible for second home status. Also known as second home.

Variable rate

An interest rate that may fluctuate or change periodically, often in relation to an index such as the prime rate or other criteria. Payments may increase or decrease accordingly.


A wage and tax statement provided by your employer annually. The W-2 form details your income and the various local and federal taxes withheld from your income. It is provided to the IRS along with your tax return.

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