Glossary | Common Terms and Definitions in the Mortgage Industry

Adjustable Rate Mortgage (ARM): A type of mortgage that has an interest rate that increases after a pre-determined amount of time, typically 5 or 7 years.

Amortization: Used by lenders to show a loan repayment schedule over the lifetime of the loan.

Annual Percentage Rate (APR): The interest rate PLUS other fees and costs associated with buying a home, so this is what you’ll end up paying on top of the principal (or the amount you borrowed for your mortgage).

Application: Used by borrowers to apply for a loan.

Appraisal: An estimate of how much your home (or potential new home) is worth in today’s real estate market. The home appraisal is part of the mortgage process. Click here for more information.

Basis Point: Also known as bps. Used to help express interest rates. One basis point is equal to 0.01% (1/100th of a percent).

Break Even Point: The amount of time it takes for you interest savings to outweigh the cost associated with refinancing a home. The break-even point can help you decide if it is worth refinancing your home or not.

Bridge Loan: A short-term loan that is used in real estate to bridge the gap between old and new mortgages (i.e. short-term cash requirements and long-term loans).

Cash to Close: Also known as funds to close. The amount of money required (not included in the loan) to complete the transaction of buying a home. Payment is typically not cash, but a cashier’s check.

Cash-out Refinance: Also known as a cash-out refi. A mortgage refinancing when a loan is taken out on a home that is already owned and the loan amount is more than what is owed on the home. The borrower then takes the difference in cash. This type of loan is commonly used for home renovations.

Certified Home Buyer: You will be positioned almost like a cash buyer. You will submit your documents for review (just like with a pre-approval) but your documents will be fully reviewed by an underwriter ahead of time. It takes a little more time up front, but you will be able to close on your home quicker than with a traditional pre-approval. Click here for more information.

Churchill Checkup: A free mortgage report available to you. Whether you are trying to save money, time, or simply exploring your options, a Churchill Checkup is the easiest way to match your mortgage with your goals. This is a great way to see if refinancing your home is a good option for you.

Conventional Mortgage: This is the most common loan option and meets the needs of most people. Due to lack of government backing for these, they do require better credit to qualify, but the cost is considerably lower than most comparable government-backed loans.

Closing Costs: The expenses that need to be paid in order to close your loan. Closing costs typically range from 2-5% of the loan principal but vary from state to state. They usually include an appraisal, credit checks, title search, and origination fees.

Closing Day: This is the final step in the home loan process where you sign important documents, pay closing costs, and when you become the legal owner of your new home.

Closing Disclosure (CD): A document with the final details about your mortgage. It includes loan terms, projected monthly payments, fees, and closing costs.

Comparables: Also known as “comps”. Used in real estate to help decide market value when buying or selling a home. Time frame matters with comparables so stick with reviewing sales in the past three months, or even pending sales.

Conforming Loan: A type of conventional home loan that complies to financing limits set by the Federal Housing Finance Agency ( FHFA ) or meet underwriting guidelines set by Fannie Mae and Freddie Mac. Conforming loan limits are announced each year.

Construction Loan: A short-term loan that is used when building or rehabilitating a home.

Credit Report: A breakdown of your credit history provided by one of the three major credit bureaus—Experian, TransUnion, and Equifax.

Credit Score: Primarily based on credit report information usually sourced from credit bureaus. Typically, this is called your FICO score and is based on your credit history. A zero credit score means you are living debt free and are considered “unscorable” because you are invisible to the credit bureaus. You will want to get a No Score Loan for a mortgage if this is the case.

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Debt-to-Income Ratio DTI: The percentage of your gross monthly income that goes toward your monthly debt payments. When applying for a mortgage, a lower DTI is best.

Discount Points: See Mortgage Points

Down Payment: An up-front payment that is a portion of the purchase price when you buy a home. This is paid “out-of-pocket” as opposed to borrowing it. Usually due on closing day.

Earnest Money: Also known as a Good Faith Deposit. A deposit made to a home seller that shows that the home buyer is serious about moving forward with a home purchase.

eBook: An electronic version of a printed book that can be read on a computer or handheld device. Click here to download a free eBook.

Equity: The difference between how much a home is worth vs. the amount you owe on the property. It is the portion of your property that you truly own.

Escrow: Many mortgage lenders hold money that you have paid in an escrow account to pay your property taxes, homeowner’s insurance, and in some instances even your homeowner’s association (HOA) fees. This makes it as easy, so you only make one mortgage payment a month, and you do not have to think about ongoing annual payments for your insurance and property taxes. Click here for more information.

Fannie Mae: Also known as the Federal National Mortgage Association (FNMA). Government-sponsored entity that buys conforming loans.

FHA Loan: If you do not qualify for a conventional loan, take a deeper look at this option. These loans are backed by the government and have a lower down payment requirement, credit score threshold, and income qualification.

First-time Home Buyer: For lending purposes, this includes any individual who has not owned a primary home for at least three years.

Fixed-rate Mortgage: A home loan that has a constant interest rate throughout the life of the loan.

Forbearance: A type of mortgage repayment relief where loan payments are temporarily postponed. Note that payments are simply delayed, not waived, so borrowers are still ultimately responsible for making these postponed payments.

Freddie Mac: Also known as the Federal Home Loan Mortgage Corporation (FHLMC). Government-sponsored entity that buys conforming loans.

Government-backed Loan: A home loan that is backed by the federal government. Examples of government loans — FHA, VA, and USDA loans.

Ginnie Mae: Also known as The Government National Mortgage Association GNMA. A U.S. government corporation within the Department of Housing and Urban Development (HUD). Specifically deals with non-conventional loans such as FHA, VA, and USDA (or government-insured loans).

Gross Income: Also known as gross salary. The total amount of money you make before federal, state, and local taxes and deductions are taken out of your paycheck. This is the number many lenders will look at when they pre-qualify you for how much they think you can afford.

Hazard Insurance: Generally, this refers to coverage for the structure of your home only. It usually covers hazards such as smoke damage, storm damage from wind or hail, fire, etc. Click here for more information.

Homeowner’s Insurance: This is usually the combination of hazard insurance with liability insurance. Homeowner’s insurance typically protects other structural coverage (like a fence or shed) and personal property (like furniture, TVs, or clothing). Click here for more information.

Home Loan Specialist: Also known as a Loan Officer. A home loan expert who represents a bank, credit union, or other financial institution who assist borrowers during the mortgage process.

HomeScout: A mobile app that allows you to view 100% of homes currently for sale listed in the MLS database and receive price change alerts on your favorite properties. It is ad-free, and your personal information is never sold. It has faster updates than most public search sites and covers the United States, no just certain local markets.

Interest Rate: The interest you will pay on your home loan.

Jumbo Loan: If you borrow more than the conforming loan limit that is allowed in your county, you will need to apply for a jumbo loan. Jumbo loans (also known as non-conforming loans) are privately backed mortgages that usually require a larger down payment, higher credit scores, and higher income levels from borrowers.

Lender: A financial institution that lends money to borrowers to purchase or refinance a home.

Loan Estimate: This is a document created by the Consumer Financial Protection Bureau (CFPB) to help you compare the costs associated with different mortgage loans. Prior to 2015, this was called the “Good Faith Estimate” form. As the name of the document implies, it is meant to be viewed as an estimate and give you figures of the cost of the home loan. Click here for more information.

Loan Officer: See Home Loan Specialist.

Loan Origination: The process you go through to obtain a mortgage (or purchase a home) through a lender. Loan Term: The amount of time you will make monthly payments to own your home free and clear (i.e. 15-years, 20-years, 30-years). In general, shorter loan terms typically have lower interest costs but the monthly payment is higher.

Loan Type: Different categories of loans such as conventional, fixed-rate, FHA, VA, USDA, jumbo etc.

Loan-to-Value Ratio (LTV): Compares the amount of the loan you are requesting to the appraised value of the home you are wanting to purchase. The ratio is used for both purchasing and refinancing home loans.

Manufactured Home: Also known as a mobile home. A type of home that is prefabricated and typically assembled in a factory and transported to a site for use.

Mortgage: A mortgage is a loan given by a mortgage company, bank, or other financial institution for the purchase of a home. Mortgages typically come with lower interest rates than other consumer loans because they are considered to have an asset backing the loan.

Mortgage Calculator: A tool to help estimate a variety of mortgage calculations such as a monthly mortgage payment, how much house you can afford, how much you can borrow, how much you have to earn to buy a house, APR, additional payments, fees and points, etc. Click here for our mortgage calculators.

Mortgage Points: Mortgage points are also known as discount points. It is basically prepaid interest on your loan— in other words, points let you make a trade-off between what you pay upfront at closing versus what you pay monthly later. It is not always beneficial to “buy down” your interest rate. In fact, you could lose money. Click here for more information.

Net Income: Also known as net salary. The amount of money you make after federal, state, and local taxes and deductions (such as retirement funds, health benefits, etc.) have been deducted from your paycheck. This is the number that you want to plan your budget around since it is your actual take-home pay.

Non-conforming Loan: A type of conventional home loan that does not comply to financing limits set by the Federal Housing Finance Agency (FHFA) or meet underwriting guidelines set by Fannie Mae and Freddie Mac. An example of a non-conforming loan is a jumbo loan.

No Score Loan: Also known as a no credit score loan or a zero-score loan. A zero-credit score means you are living debt free and are considered “unscorable” because you are invisible to the credit bureaus. You will want to get a No Score Loan for a mortgage if this is the case. For more information, click here.

Non-traditional Loan: Several types of loans fit into this category, including: Jumbo, Zero Score, Interest Only, Adjustable Rate, etc. If conventional methods of homeownership are not an option for you, then a non-traditional loan might be. These loans offer versatile methods of financing for select borrowers.

Origination: See Loan Origination

Pre-Approval: This is when you submit documents for review to a lender. Your credit report will likely be pulled to help determine a loan amount for which you qualify. You will know a price range you are working with when shopping for a home. This is just saying that your loan can be approved (not will be approved).

Pre-Qualification: This is when you answer questions about your credit history and income to your Home Loan Specialist or online through an automated services. It is fast but not very reliable because you can get a wide range of how much you can spend which can be confusing.

Principal: The balance left to pay on a mortgage.

Private Mortgage Insurance PMI: PMI stands for Private Mortgage Insurance. Most lenders require PMI on a Conventional loan when a home buyer makes a down payment of less than 20% of the home’s purchase price. PMI does not safeguard your mortgage payment. If you cannot put 20% down when buying a home, you can still reduce the amount of PMI you pay each month by putting some money down (the more the better in this situation). If you have an FHA loan, you will be required to pay monthly mortgage insurance (MMI) regardless of your down payment amount.

Processing: Part of the home loan process that takes place after the application has been submitted. The information from the application (i.e. bank statements, payment histories) are verified and a credit report and appraisal are typically requested.

Q R

Rate: See Interest Rate.

Rate Cap: An interest rate that can fluctuate but cannot go above a benchmark interest rate.

Rate Lock: It’s a guarantee your interest rate is “locked in” and won’t change between your offer and closing day, as long as you close within a specific time period (i.e. 30, 60, or 90 days).

Rate Secured: You can protect yourself from fluctuating interest rates using Churchill’s Rate Secured program when getting a home loan.

Rate Watch: We will keep an eye on interest rates and notify you as soon as it makes sense to refinance your mortgage and save you money. Sign up for interest rate alerts here.

Realtor: Also known as a real estate agent. This person acts as an agent for the sale and purchase of residential and commercial properties and land.

Refinance: Refinancing is when you pay off an existing home loan and replace it with a new one. Click here to download a Refinancing Starter Kit.

Repeat Home Buyer: Home buyers who have purchased a home before. This means you are ready to upsize, downsize, invest in a new property for a second income or a vacation home.

Servicer: The company that sends your mortgage statements and manages the ongoing administration of your home loan.

Term: The length of time a loan extends from the original funding date. The most common terms are 15, 20 or 30 years.

Title: Your legal ownership of a home.

Title Company: A title company usually plays several key roles when you buy or sell a home. They can provide title services, issue insurance policies, handle closing day, finalize your loan files, and record your paperwork. Click here for more information.

Underwriting: One of the steps of the mortgage process. Underwriting evaluates your credit history, assets, income and employment, liabilities, and down payment. There are two types of underwriting—automated and manual. Automated is a computer-generated process while manual is done by a person. Oftentimes, manual underwriting is needed when you need a No Score Loan.

USDA Loan: This loan is designed for rural borrowers, making it ideal for those who may not be able to get conventional financing. It is managed by the Rural Housing Service and offers flexible credit criteria.

VA Loan: If you serve (or have served) in the U.S. military this mortgage option might be for you. It is an earned benefit offered to all active duty and retired military personnel. It has highly competitive pricing, no mortgage insurance requirement, the option to wrap the down payment into the loan principal, and further benefits extended to disabled vets.

Virtual Tour: Allows home buyers to digitally tour (through online services, video, FaceTime, etc.) a home for sale when they cannot view the house in-person.

W-2: Also known as the Wage and Tax Statement. This is the document your employer is required to give every employee whom they paid a wage, salary, or other form of compensation. You will need to provide your W-2 forms when you apply for a mortgage.

Zero Score Loan: See No Score Loan.

Mortgage Glossary

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