Your Mortgage Loan Term Dictionary

If you’ve arrived here, you’re probably entering the world of home buying. Welcome! If you haven’t already, you’ll quickly notice the path to a mortgage is paved with acronyms and its own language. Many of the terms you’ll find in this guide aren’t explained at school or used in regular conversation. So, it’s important to get familiar with this terminology because it’s the vocabulary that will be used throughout your home loan process.

We hope that you’ll dive into this guide and get comfortable with it, so it can give you more knowledge and understanding throughout your home loan process. We know that becoming a home buyer can feel overwhelming, and we want to make things a little less stressful. So, feel free to print this out, email it to yourself or revisit it throughout your home buying journey. If you have further questions about the terms you see, ask your Licensed Loan Specialist for clarification!

A-C

Ability to repay: This is the lender’s reasonable and good faith determination that you will financially be able to make payments on the home loan based on your income and debt information.

Amortization: The decrease of debt through regular payments made toward your home loan.

Mortgage payments are split between two main parts: your principal amount and interest.

The third part is escrow, which is paid by the borrower to the mortgage company to cover the cost of homeowner’s insurance & property taxes. Typically, regular payments go toward interest in greater amount (especially earlier on in a loan), reducing it quicker. As the loan is paid down over time, the amount going toward your principal increases. If a home loan doesn’t fully amortize, then you may still owe money after all your payments are made.

Annual percentage rate: Often referred to as the “APR,” this is the complete cost of your loan per year, shown as a percentage. The APR includes the interest, fees owed to the lender, such as origination fees, in addition to other charges. This is broader than just the interest rate, and is typically higher because of it.

Appraisal: The assessment of a home to determine its current market value, which is typically completed by a licensed third-party appraiser. This is usually the buyer’s expense, but be sure you know what’s involved in your specific situation. You can also learn about appraisals for manufactured homes here.

Balance sheet: A financial document that breaks down the assets and liabilities of a business. This document is typically requested for applicants who are self-employed or own a business.

Buy for: Vanderbilt Mortgage and Finance, Inc. offers a unique loan option. A Buy For option is when a customer is purchasing a home for the purpose of someone else to live in. The applicant(s) cannot live in the home. Their financial and credit information will be used to decision on the application.

Closing costs: Processing fees and costs that your lender charges for their services. Costs are specific and unique to every home loan.

Closing disclosure: For many types of loans, a required document from the lender that details the final terms of the home loan transaction. Among other things, this document discloses the amount of your total monthly payment, the interest rate and any closing costs or fees.

Co-borrower: A person who typically is an additional borrower sharing in the ownership of the home and responsibility to pay back the mortgage loan. A co-borrower jointly applies for a loan with the primary borrower.

Conditional Approval: When a loan underwriter designates that your application is ready to be verified for accuracy. It works as a contingency. If the conditions can be found accurate through verification and further documentation, then an approval is issued. This can also be referred to as “approval of conditions” or “loan conditions.”

Collateral: This is the property you offer as security for the loan. Lenders ask for this to protect themselves in case a borrower fails to make timely payments on the loan. Either the home itself or the home and land together can be collateral for a loan on a manufactured home. See land in lieu option below for more info.

Co-signer: A person who is added to the loan with the primary borrower and agrees to be fully responsible for repayment if the primary borrower can no longer do so. A co-signer is usually needed when the primary borrower does not meet the required credit thresholds in order to qualify for the loan by themselves. The co-signer typically does not live in the home nor share in the ownership. Instead of a co-signer option, Vanderbilt offers a buy for option.

D-J

Debt-to-income ratio: This is your monthly debt payments divided by your gross monthly income (see below) and is used to help measure your ability to repay a loan.

Deed: A legal document that is recorded in the land records of the jurisdiction where the property is located that shows proof of ownership of the land and home (if the home is attached to the land).

Delinquency: Another term for being late on a payment for a debt. This can occur when you miss a payment or you only make a partial payment by the due date.

Down payment: A percentage of the home’s value paid upfront or at closing.

Escrow: An escrow account refers to an account established by a mortgage servicer on behalf of a borrower to collect money to pay property or personal property taxes and insurance premiums (including flood insurance). The money that goes into the account comes from a portion of your monthly mortgage payment.

Equal Credit Opportunity Act (ECOA): A federal law that prohibits lenders from unlawfully discriminating against consumers when applying for credit. Learn more about ECOA from the Consumer Financial Protection Bureau’s blog and how it protects borrowers.

Gross monthly income: The income you earn and receive each month before any tax or other deductions are accounted for.

Inspection: A home inspection is an examination of the current condition of the house done by a licensed professional. It is not required, unless designated. This is the buyer’s expense.

Installment debt: A loan type, typically used for large purchases, such as a home. The loan is a set amount of cash you receive all at once to make your purchase. It is then repaid in installments over a regularly scheduled time and with equal payments.

Homeowners insurance: An insurance policy that is typically required by lenders and pays for covered losses and damage to the home as outlined by your specific policy.

Insurance binder: Documentation from an insurance company that shows temporary proof of homeowners insurance until the permanent policy is issued.

Interest rate: The cost you will pay each year to borrow money, expressed as a percentage. It does not include any fees or charges like with the annual percentage rate.

Judgment: An official ruling issued by a court. In the mortgage context, if a borrower defaults on a loan, then the lender may seek a judgment against the borrower, which could entitle the lender to certain state law remedies in order to satisfy the debt.

L-R

Land in lieu: When the lender allows land — either owned or received as a gift — to be used as collateral instead of a cash down payment when obtaining financing to purchase a new home. The lender then holds a lien on the land as well as the home. Liens are released when a loan is paid in full.

Liabilities: Financial obligations, or debts, that are owed to others, such as credit card balances. Mortgage loan applications willtypically include a section to list these for the lender’s information.

Lien: In the mortgage context, a type of security interest in property that secures the payment of the debt from the borrower until the loan is paid in full. Typically, if there is a lien on your home as a result of taking out a mortgage, that means you still owe money on the home loan.

Loan amount: The amount you need to borrow is calculated by the purchase price of the home, minus your down payment, plus any other costs that will be covered by the loan including closing costs and third-party fees.

Loan estimate: For many mortgage types, a document detailing the estimated terms of the requested home loan. This will include information such as the estimated amount of your monthly payment, interest rate, loan features and any closing costs or fees. A lender must provide this document to the borrower within three business days of the lender receiving a complete application.

Loan origination: In general, this means the entire process that must be completed in order to secure a home loan, all the way from application to closing.

Pre-approval: A letter that tells you what a lender is willing to lend you based on financial documentation you provide. Your lender will look at financial history, income, and stability; specifically bank statements, proof of income, credit, employment and personal documentation. Usually the next step after pre-qualification.

Pre-qualification: A letter from a lender that says you will likely be able to get a mortgage loan up to a specified amount. Based on debts and income to decide your credit worthiness.

Profit and loss statement: A financial document that shows the earnings and expenses of a business for a certain period, usually an entire year. This document is typically requested during the verification of income process for someone who is self-employed or owns a business.

Property taxes: A local government tax on property that is based on the value of the property or home. In many cases, these taxes are collected as part of the monthly mortgage payment and are put into an escrow account, which will be used by the lender to pay the tax bill when it comes due. If the taxes are not escrowed, then the property owner pays the bill directly.

Revolving debt: Balances from revolving credit that are still open. For example, debts that are still carried from credit cards, personal lines of credit, or from a home equity line of credit (HELOC).

S-Z

Survey: A drawing of the property that shows the location of the lot, the boundary lines and any structures or improvements, as well as acreage.

Title: A document that shows the legal owner of a manufactured home and/or land.

Underwriting: A process the lender undertakes to evaluate the loan applicant, their ability to repay the loan and the property that will serve as collateral for the loan. This process usually includes verifying the applicant’s employment and income as well as evaluating other information, such as credit history, tax returns and bank statements.

U.S. Department of Housing and Urban Development (HUD): A federal Cabinet department that regulates certain housing policies and programs. Learn more on their website.

That’s the end of our mini dictionary, but that’s not to say you might see some other terms not listed here. However, we hope to give you a solid start to feeling empowered and knowledgeable about some of the language you’ll hear during the home loan process. Remember that if you need further help, our team of licensed loan specialists and representatives are here to help answer your questions!

Now you have the most common vocabulary down! Don’t worry, there won’t be a pop quiz. It can still be a lot to wrap your head around though, so please remember our team of licensed loan specialists and representatives are here to help answer any questions you may have about the process.

Ready to learn more? Check out our guide to portfolio mortgages.