​​​Thinking of buying a home, refinancing your home, or taking out a home equity loan? If any of these events are imminent in your future don't let lender language be a barrier to successful borrowing. Preparing for any financing activity begins with learning the lingo of the finance world. Take a few moments to read up on the ABC's of buying a home and make your experience a pleasant one!

A | B | C | D | E | F | G | H | I | J | L | M | N | O | P | Q | R | S | T | U | V | W | Z

A

Acceleration Clause - part of an agreement that gives a lender permission, under certain conditions, to demand all the money owed on a loan.

Acceptable Debt - how much debt a lender thinks a borrower can handle before agreeing to give them a loan.

Adjustable Rate Mortgage (ARM) - a mortgage loan or deed of trust which allows the lender to adjust the interest rate in accordance with a specified index periodically and as agreed to at the inception of the loan. Also called "variable rate mortgages" (VRM).

Adjustment Date - the day when the interest rate changes on an adjustable rate mortgage (ARM).

Adjustment Period - how often an adjustable rate mortgage’s (ARM) interest rate changes

Amortization - the gradual repayment of a loan by installments calculated to retire the principal at the end of a fixed period.

Amortization Schedule - a table showing the amounts of principal and interest due at regular intervals and the unpaid mortgage balance after each payment made.

Amortization Term - the amount of time you need to completely pay off a mortgage.

Appraisal - an expert or official valuation of a home. The lender will hire a qualified professional who makes an independent judgment of the home’s value based on its condition, prevailing prices in the neighborhood, resale values, age and other factors. An appraisal is different from a home inspection.

Annual Percentage Rate (APR) - the cost of credit expressed as a yearly rate.​

Assumable Mortgage - a loan that allows a homebuyer to take over a seller’s mortgage when purchasing a home.

Assumption - when a buyer takes over a seller’s mortgage upon purchasing a home.

Assumption Clause - the part of a loan contract that says a buyer can take over an existing mortgage.

B

Balloon Mortgage - a mortgage with periodic installments of principal and interest that do not fully amortize the loan. The balance of the mortgage is due in a lump sum at a specified date, usually at the end of the term.

Balloon Note - a written promise to pay a balloon mortgage’s full balance when due.

Balloon Payment - a scheduled payment on a mortgage that is larger than other, periodic payments, usually the unamortized final payment. Usually the amount that must be paid in a lump sum at the end of the term.

Basis Point - one one-hundredth of one percent. Used primarily to describe changes in yield or price on debt instruments, including mortgages and mortgage-backed securities.

Biweekly Payment Mortgage - a loan that has a biweekly payment schedule. This is a total of 26 monthly payments a year, ultimately paying off a loan faster and saving on interest costs.

Buydown - money advanced by an individual to reduce the monthly payments for a home mortgage either during the entire term or for an initial period of years.

C

Cash-out Refinance - when homeowners apply for a new larger loan with the purpose of paying off a present loan and keeping the difference for personal use.

Closing - the finalizing of a sale; the buyer signs the mortgage, and closing costs are paid.

Closing Costs - the costs associated with obtaining your loan, including but not limited to title transfer, origination fee, hazard and mortgage insurance, credit report and appraisal fee.​​

Closing Disclosure - a disclosure that lenders are required to provide to applicants for residential mortgage loans at least three business days before applicants are scheduled to close on their mortgage loans. The Closing Disclosure provides details about the actual costs of the mortgage loan selected, including but not limited to the loan amount, interest rate, monthly payment, closing costs, and other attributes of the loan.

Collateral - items of value that a borrower offers as security on a loan. If the loan is not paid the lender may collect the items.

Comparables - an abbreviation for comparable properties used for comparative purposes in the appraisal process. Refers to facilities of reasonably the same size and location with similar amenities. Also properties that have been recently sold and have characteristics similar to property under consideration, thereby indicating the approximate fair market value of the subject property.

Consumer Disclosure Statement   - a disclosure statement containing a brief explanation of the relationship between an individual and a mortgage broker under the proposed Mortgage Broker Agreement contract (see definition below), a brief explanation of the manner in which the mortgage broker may be compensated under the proposed contract, and any additional information required by rule of the Wisconsin Department of Financial Institutions. This must be provided to a Wisconsin consumer before a mortgage broker enters into a contract with the consumer.

Contingency - a condition that must be met as stated in the offer to purchase before a contract becomes legally binding.

Contract of Sale - a contract between a purchaser and a seller of real property to convey a title after certain conditions.

Conventional Loan - a mortgage loan not insured by or guaranteed by the Department of Veterans Affairs (VA) Federal Housing Administration (FHA), or U.S. Department of Agriculture (USDA).

Convertible ARM - an adjustable rate mortgage (ARM) that can be switched to a fixed rate mortgage during a specific period.

Credit - the ability to borrow money from a lender; also the ability to purchase goods and pay for them later.

Credit Bureau - a firm, which maintains credit reports on individuals and the use or abuse of the credit extended to them.

Credit Rating - a rating given to a person or company that establishes credit-worthiness based upon present financial condition, experience, and past credit history.

Credit Report - a report to a prospective lender on the credit standing of a prospective borrower, used to help determine credit worthiness.

Creditor - a person or firm to which debt is owed.

D

Debt - an obligation owed to another.

Debtor - one who owes a debt.

Debt Ratio –Back End - monthly mortgage payments and monthly debt payments divided by the gross monthly income.

Debt Ratio-Front End - monthly mortgage payment divided by the borrower’s gross monthly income.

Deed of Trust - in some states a document used in place of a mortgage; a type of security instrument in which the borrower conveys title to real property to a third party to be held in trust as security for the lender, with the provision that the trustee shall reconvey the title upon the payment of the debt, and conversely, will sell the land and pay the debt in the event of a default by the borrower.

Default - a breach or nonperformance of the terms of a note or the covenants of a mortgage.

Delinquency - failure to pay on an obligation when due; missing a payment to a creditor.

Discount Point - the amount added to closing costs in exchange for a lower interest rate on a loan.

Down Payment - the difference between the sale price of real estate and the mortgage amount.

E

Earnest Money - a deposit made to bind the conditions of a sale of real estate.

ECOA - Equal Credit Opportunity Act. ECOA is a federal law that requires lenders and other creditors to make credit equally available without discrimination based on race, color, religion, national origin, age, sex, marital status, receipt of public assistance programs, or good faith exercise of any rights under the Consumer Credit Protection Act.

Effective Rate/Cost - total cost of a loan on a yearly basis expressed as a percentage. Includes up front costs paid to obtain the loan.

Encumbrance - anything that affects or limits the fee simple title to property, such as mortgages, leases, easements, or restrictions.

Equity - the difference between your home’s fair market value and your current indebtedness.

Escrow Account - a fund used to set aside monies paid by the debtor for eventual payment of things like property taxes or property insurance. The financial institution holds the funds for eventual transmittal to a third party at a date in the future.

Escrow Analysis - the periodic examination of escrow accounts to determine if current monthly deposits will provide sufficient funds to pay tax, insurance, and other bills when due.

F

Fair Market Value - the price at which property is transferred between a willing buyer and a willing seller, each of whom has a reasonable knowledge of all pertinent facts and neither being under any compulsion to buy or sell.

Federal Home Loan Mortgage Corporation (Freddie Mac or FHLMC) - a shareholder-owned company that operates under a congressional charter that buys loans from approved lenders, pools mortgages into securities, and sells those securities to investors.

Federal National Mortgage Association (Fannie Mae or FNMA) - a shareholder-owned company that operates under a congressional charter that purchases mortgages from lenders and guarantees mortgage-related securities.

FHA Mortgage - a loan with certain restrictions that is guaranteed by the Federal Housing Administration (FHA).

First Mortgage - a real estate loan that creates a primary lien against real property.

Fixed Rate Loan - a loan or mortgage in which the interest rate is determined at the beginning of the term and stays constant throughout.

Foreclosure - a legal procedure in which a mortgaged property is sold in a legal process to pay the outstanding debt in case of default.

G

Gap Financing - an interim loan given to finance the difference between the floor loan and the maximum permanent loan as committed. Also called bridge financing.

Government Mortgage - a loan in which the government is guaranteeing the lender against loss. Examples of such loans are Veterans Administration (VA) loans, and Federal Housing Administration (FHA) loans.

Government National Mortgage Association (Ginnie Mae) - a government-owned corporations that guarantees investors the timely payment of principal and interest on mortgage-backed securities backed by federally insured or guaranteed loans - mainly loans insured by the FHA or guaranteed by the VA.

Grace Period - a period of time (usually days) after an obligation is due during which a borrower can perform without incurring a penalty and without being considered in default. The borrower is still considered "delinquent" during this time period.

Graduated Payment Mortgage (GPM) - a type of flexible-payment mortgage where the payments increase for a specified period of time and then level off.

Gross Income - total income before any expenses are deducted.

H

Hazard Insurance - a contract whereby an insurer, for a premium, undertakes to compensate the insured for a loss on a specific property due to specific hazards.

Home Equity Line of Credit - a loan providing you with the ability to borrow funds at the time and in the amount you choose, up to a maximum credit limit for which you have qualified. Repayment is secured by the equity in your home. Often used for home improvements, major purchases or expenses, and debt consolidation.

Home Equity Loan - a fixed or adjustable rate loan obtained for a variety of purposes, secured by the equity in your home. Often used for home improvement or freeing of equity investment in other real estate or investment.

Homeowners Association - an organization of homeowners residing within a particular development whose major purpose is to maintain and provide community facilities and services for the common enjoyment of the residence. Usually associated with condominium owners.

Homeowner’s Policy - a multiple peril policy commonly called a "package policy." It is available to owners of private dwellings and often covers the dwelling and contents in case of fire or wind damage, theft, liability for property damage, and personal liability.

Homeowners Warranty (HOW) Program - a program operated by a wholly-owned subsidiary of the National Association of Home Builders through which participating builders provide homebuyers with a warranty on the workmanship and materials of a home, and also warrant against major structural defects.

I

Impound - that portion of a mortgagor’s monthly payments held by the lender or servicer to pay for taxes, hazard insurance, mortgage insurance, lease payments, and other items as they become due. Known as reserves in some states.

Index - a published interest rate, such as, for example, the U.S. prime rate or Constant Maturity Treasury (CMT) rate. Lenders use indexes to establish interest rates charged on mortgages or to compare investment returns. On an adjustable rate mortgage (ARM), a predetermined margin is added to the index to compute the interest rate adjustment.

Initial Interest Rate - the starting rate of an adjustable rate mortgage (ARM). This rate stays fixed for a short time then adjusts according to the terms and adjustment schedule negotiated by the borrower and lender.

Interest - the cost of credit; expressed as an annual percentage (see annual percentage rate).

Interest Rate Margin - added to the index value of the loan to determine the note interest rate.

J

Joint Tenancy - a form of co-ownership giving each tenant equal interest and equal rights in the property, including the right of survivorship.

Jumbo Mortgage - a mortgage which is larger than the legislated purchase limits of Fannie Mae and Freddie Mac.

L

Land Contract - an agreement to transfer title to a property once conditions of a contract have been filled.

Late Charge - an additional charge that a borrower is required to pay as a penalty for failure to pay a regular installment when due.

Liabilities - the financial responsibilities and obligations of an individual or firm such as debt, accounts payable, etc.

Lien - a legal hold or claim by a creditor or other party against an asset. If an obligation is not fulfilled the property may be seized through a court order to satisfy the lien.

Life Interest Rate Cap - limits the interest rate to a fixed percentage regardless of whether or not the interest increases to a percentage beyond the cap.

Loan - an agreement to borrow money, most often in writing and for a specific period of time, at a stated interest rate and repaid according to a specific plan.

Loan Estimate - a disclosure that lenders are required to provide to applicants for residential mortgage loans within three days of their application date. The Loan Estimate provides a good faith estimate of various loan terms, such as estimated interest rate, monthly payment, and closing costs, and it indicates if the loan has features such as a prepayment penalty or negative amortization. Applicants for reverse mortgages, home equity lines of credit, or manufactured housing loans not secured by real estate will not receive Loan Estimates; they will receive a Truth-In-Lending disclosure, and applicants for reverse mortgages will also receive a Good Faith Estimate.

Loan Originator - usually refers to an individual working on behalf of a mortgage banker or broker who negotiates the terms of the mortgage agreement. In some states, like Wisconsin, loan originators are licensed.

Loan-to-value ratio (LTV) - the difference between the outstanding mortgage amount and the value of a property. This ratio is often expressed to a potential purchaser of a property as the maximum percentage a lending institution is willing to finance.

M

Monthly Payment Cap - this cap limits the amount that your monthly payments can increase from one adjustment period to the next.

Mortgage - a type of debt in which the borrower gives the lender a lien against the property until the funds are paid back.

Mortgagee - the lender in a mortgage transaction.

Mortgage Banker - a firm, individual, or corporation that originates, sells and/or services loans secured by mortgages on real property.

Mortgage Broker - This license is required of anyone who, for compensation or gain or in the expectation of compensation or gain, assists a person in obtaining or applying to obtain a residential mortgage loan; holds itself out as being able to assist a person in obtaining or applying to obtain a residential mortgage loan; or engages in table funding. A mortgage broker does not make an underwriting decision or close a residential mortgage loan.

Mortgage Broker Agreement - a written agreement or contract between a mortgage broker and an individual under which the mortgage broker agrees to provide brokerage services to the individual relating to a residential mortgage loan. This form is required in Wisconsin.

Mortgage Commitment - an agreement between lender and borrower detailing the terms of a mortgage loan such as interest rate, loan type, term, and amount.

Mortgage Disability Insurance (MDI) - an insurance policy you can buy that pays off the balance owed if the insured becomes disabled during the term of the mortgage.

Mortgage Insurance Premium (MIP) - an amount paid by a mortgagor for mortgage insurance either to the FHA or a private mortgage insurance company.

Mortgage Life Insurance (MLI) - term life insurance paid by the borrower in which the amount of coverage decreases as the mortgage balance declines. In the event that the borrower dies while the policy is in force, the debt is automatically satisfied by insurance proceeds

Mortgage Note - a written promise to pay a sum of money at a stated interest rate during a specified term. A mortgage note is secured by a mortgage.

Mortgagor - the borrower in a mortgage transaction who pledges property as a security for a debt.

N

Negative Amortization - the unpaid interest which is added to the mortgage principal in a loan where the principal balance increases rather than decreases because the mortgage payments do not cover the full amount of interest due.

Net Payoff - the amount paid to a creditor to pay off a loan or account. Any pre-computed charges or interest are deducted to determine the figure.

Nominal Interest Rate - the stated rate of interest in a loan agreement.

Nonconforming Mortgage Loan - a mortgage loan in which the loan amount, the loan-to-value ratio, the term, or some other aspect of the loan exceeds permissible limits as specified in agency regulations.

O

Open-end Mortgage - a mortgage with a provision that the outstanding loan amount may be increased upon mutual agreement of the lender and borrower.

Origination Fee - the lender’s fee charged to a borrower for making the mortgage loan. Sometimes stated as a percentage of the face value of the loan.

P

Payment Cap - a limit on how much the payments on an adjustable rate mortgage (ARM) can go up or down.

Periodic Interest Rate Cap - this limits the amount an adjustable rate mortgage's (ARM) interest rate can change from one adjustment interval to the next.

PITI - Principal, interest, taxes, insurance. The components that make up your monthly mortgage payments.

PITI Ratio - the ratio of principal, interest, taxes and insurance to gross income.

Point - an amount equal to one percent of the principal amount of an investment or note. Loan discount points are a one time charge assessed at closing by the lender to increase the yield on the mortgage loan.

Power of Attorney - a legal document authorizing one person to act on behalf of another.

Prepayment Penalty - a consideration paid to the mortgagee for the prepayment privilege. Also known as reinvestment fee.

Prepayment Privilege - the right given to a borrower to pay of all or part of a mortgage debt before it is due.

Prequalification - a process used by a lender or real estate professional to determine how much money a prospective home buyer will be eligible to borrow based on standard qualifying ratios.

Prime Rate - the interest rate which a financial institution charges its largest and best corporate customers, often used as a basis to price other loans.

Principal - the amount borrowed prior to any principal repayment or current unpaid balance, exclusive of accrued interest, remaining on the loan; also that portion of a monthly mortgage payment which reduces the outstanding balance of a mortgage.

Principal Balance - how much the borrower has left to pay on the loan principal.

Private Mortgage Insurance (PMI) - insurance written by a private company protecting the mortgage lender against financial loss occasioned by a borrower defaulting on the mortgage. This is paid monthly as part of the mortgage payments by the lender.

Promissory Note - a written promise to pay a specific sum at a specified time.

Pro-rate - to allocate proportionate shares of income (such as rents) or of an obligation (such as taxes and insurance premiums), paid or due, between seller and buyer at closing.

Q

Qualifying Ratios - guidelines used by lenders to evaluate a homebuyer’s borrowing potential. The main qualifying ratios are the front end and back end ratios (see Debt Ratios).

R

Real Estate Settlement Procedures Act (RESPA) - federal law which regulates the settlement practices within the real estate industry. RESPA seeks to reduce unnecessarily high settlement costs by requiring disclosures to homebuyers and sellers, and by prohibiting abusive practices in the real estate settlement process. All borrowers must be given information about real estate transactions, settlement services, and relevant consumer protection laws, as well as the possibility of mortgage servicing being transferred

Real Property - land and improvements permanently attached to it, such as buildings. In some states this term is synonymous with the term real estate.

Realtor® - a real estate broker or an associate holding active membership in a local real estate board affiliated with the National Association of Realtors.

Recording - the noting in the registrar’s office of the details of a properly executed legal document, such as a deed, a mortgage, a satisfaction of mortgage, or an extension of mortgage thereby making it a part of the public record.

Redlining - the practice of restricting or denying mortgage loans for certain areas in a discriminatory pattern.

Refinancing - the repayment of a debt from the proceeds of a new loan using the same property as security.

Regulation Z - a regulation written by the Federal Reserve Board to implement the Truth-in-Lending Act.

Rescission - the cancellation or annulment of a transaction or contract by law or by mutual consent.

Reverse Mortgage - a loan that allows homeowners, typically at least 62 years of age, to borrow money using their home as security for the loan. Borrowers do not make monthly mortgage payments, but interest and fees are added to the loan balance each month, and the homeowners are required to pay property taxes and insurance, use the property as their principal residence, and keep their house in good condition.  Repayment requirements are specified in the loan agreement might require repayment under a number of conditions, such as the following: all borrowers have died, all borrowers have sold the residence or conveyed title to the residence, all borrowers have moved from the residence, borrowers have failed to pay property taxes or homeowners insurance, or borrowers have failed to maintain the property.

S

Satisfaction of Mortgage - the recordable instrument given by the lender to evidence payment in full of the mortgage debt. Sometimes known as a release deed.

Second Mortgage - a mortgage that has rights subordinate to a first mortgage, i.e., the proceeds from a foreclosure sale must pay the first mortgage before any funds can go to repay the second mortgage. Also called a second trust.

Secondary Mortgage Market - a system whereby lenders and investors buy existing mortgages or mortgage-backed securities, and in doing so, provide greater availability of funds for additional mortgage lending by banks, mortgage bankers, and savings and loans associations.

Security Interest - the interest of a creditor in the property of a debtor.

Servicing a Mortgage - receiving payments on a note from the borrower and distributing the payments in accordance with the terms of the note or servicing agreement, with respect to a residential mortgage loan.

Settlement Costs - money paid by borrowers and sellers to effect the closing of a mortgage loan. This often includes an origination fee, discount points, title insurance, survey, attorney’s fee and such prepaid items as taxes and insurance escrow payments, but fees and services provided may vary.

Simple Interest - a method of calculating the earned finance charge by applying the annual percentage rate to the unpaid balances for the actual time those balances were unpaid up to the date of prepayment. The basic concept is that the finance charge is computed only on that portion of the original amount financed which is still owed.

T

Term - the life of the loan.

Title - the documents that establish legal ownership of a piece of property. A title search will be performed prior to closing to ensure that there are no outstanding liens or claims on the property.

Title Insurance Policy - a required insurance policy ensuring that the title will be held free of any liens other than those incurred by the buyer.

Title Search - an examination of public records, laws, and court decisions to disclose the past and current facts regarding ownership of real estate.

Truth in Lending Act - a key federal statute that provides for important disclosures of terms and ensures various consumer rights in lending transactions. Typically the annual percentage rate (APR) is used to compare competing credit institutions.

U

Underwriting - a process during which a loan application is evaluated to determine the risk involved to the lender and a decision made on whether to grant the loan.

V

Variable Rate - a periodic rate that may change based on some type of index. If the rate is subject to change, this must be disclosed to you in writing.

Variable Rate Mortgage (VRM) - a mortgage agreement that allows for adjustment of the interest rate in keeping with a fluctuating market and terms agreed upon in the note.

Verification of Deposit (VOD) - a form that requests and secures verifications of amounts on deposit that the applicant lists on the loan application.

Verification of Employment (VOE) - documentation of a mortgage applicant’s work history and/or occupation that is intended to assist with the lender’s credit investigation and decision process. Many lending institutions ask potential borrowers to sign employment verification forms and then under the applicant’s signature, make direct inquiries to employers about the applicant.

W

Workout Agreement - a plan to correct a delinquent or defaulted mortgage.

Z

Zoning - the act of city or county authorities specifying the type of use to which property may be put in specific areas.

​Contact Us

Phone: (608) 261-7578
Email: DFIMortgageBanking@dfi.wisconsin.gov