The gradual reduction of debt through scheduled payments necessary to pay principal and interest and as a consequence payoff the debt. Amortization periods vary.

Annual Percentage Rate (APR)

The yearly rate of a loan shown annually with costs. The APR includes the interest, origination, discount points, lender fees and mortgage insurance, therefore it will be somewhat higher than the actual loan's interest rate.


Often called a 1003 by mortgage profesionals. This is simply an initial form with your personal and financial information necessary to obtain an approval by underwriting.


An independent licensed appraiser's non-biased estimate of a property's current market value on a written report (1004). The value is based on recent sales information for comparable properties and the current condition.

ARM - Adjustable Rate Mortgage.

A variable-rate loan where the interest rate periodically adjusts based on the index, caps, and margin.


Valuable holdings owned by the borrower which include personal property, real property. This includes art jewelry, cars, bank accounts, stocks, mutual funds used to determine net worth.

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Back-end ratio

A ratio that shows the part of a borrower's monthly income that pays total monthly debts. Total monthly debt is comprised of mortgage payment (principal, interest, property taxes and hazard insurance, HOA), car payment, credit card payments, child support, student loans, and any other payments.

Ballon Mortgage

A short term loan with 30-year amortizatio payments but is scheduled to be paid in full with a lump sum once the 5 to 7 year date arrives.

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A safeguard for borrowers that restricts how much your monthly payment on an adjustable rate mortgage can change in a given period.

Cash to Close

This is how much the home buyer will need to bring at the closing appointment (down payment and closing costs). For a refinance, the borrower may be receiving cash back.

Cash out Refinance

A refinance transaction whereby the new loan amount is more than the principal balance of the existing first mortgage and any second mortgages or liens, along with he new loan's closing costs.


The maximum interest rate that a variable rate or adjustable-rate mortgage can be for the life of the loan.

Certificate of Eligibility

The Certificte of Eligibility, Form 26-1880, is issued by the Veteran's Association certifying a veteran’s eligibility for a VA loan.

Certificate of Reasonable Value (CRV)

A document given by the Department of Veterans Affairs (VA) that determines the maximum value and loan amount for a VA loan, supported the appraisal.


This is where you will finalize the transfer of the property you are getting a mortgage. All documents for your loan are signed, dated, and notarized by a closing agent.

Closing Costs

Fees and other expenses paid by the borrower (and seller for purchases) at closing. See FAQs for itemization.

Closing Disclosure

A closing document which provides loan specifics like the interest rate, monthly payments, and the final costs to close the loan. Borrowers must receive this form no later than 3 business days prior to the loan closing.


An abbreviation for "comparable properties" used for comparative purposes in the appraisal process. Comparables(comps) are properties very similar to the property the borrower wants to borrow on; With this data, the appraiser determine the estimated fair market value of the subject property.

Contract to Buy & Sell Real Estate (Residential - CBSI 6-15)

An approved legal form by the Colorado Real Estate Commission for licensed brokers and agents to faciliate the purchase and sale of rsidential real estate between a buyer and seller.

Conventional Mortgage

A mortgage with 20% or more down payment of the purchase price or the property's value. It is not governmnt insured.

Credit Report

A report prospective lender used to help determine credit worthiness of the prospective borrower.

Credit Score

A 3-digit number that rates the quality of a consumer's credit. With the assistance of complex algorithms by the Credit reporting agencies, lenders use the number as part of the process to offering rates and terms to prospective borrowers. Lenders often use the middle score of the 3 bureaus.

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Debt to Income Ratio (DTI)

the percentage of your monthly income before taxes that you pay toward debt (loans, credit cards, other debt obligations), and if applicable include HOA dues and private mortgage insurance.

Discount Point

A fee paid at closing to the lender in order to lower or "buy down" the interest rate. A discount point equals one percentage point of the loan amount.

Down Payment

The funds you will pay toward the purchase of your home. It is also the difference between the purchase price and your new mortgage.

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Earnest Money

A good-faith deposit made by the buyer per the sales contract and applied toward the purchase price of the property.


The difference between the market value of the property and the outstanding mortgage balance of the property. This difference is the owners. Example: Property value is $350,000 and the mortgage owed is $250,000. The owner has $100,000 equity.

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Fair Market Value

The price at which a property is transferred between a willing buyer and a willing seller, with each having reasonable knowledge of all facts and neither party under duress to buy or sell. Usually, a recent appraisal will confirm the fair value.

Federal Housing Administration (FHA)

A Department of Housing and Urban Development agency that provides mortgage insurance for specific residential mortgages.


The acronym used to refer to Fair Isaac Corporation. They created the mathematical formulas used to produce credit scores for assessing credit risk. Over 90% of lenders use FICO scoring system on prospective borrowers and use the middle score.

First Mortgage

A lien on real property used as security for repayment.

Fixed-Rate Mortgage

A mortgage where the interest rate stays the same for the full term of the loan.

Funding Date

The date when the loan proceeds are available to be disbursed.

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The funds a borrower receives from a family member that do not have to be paid back and it to be used for a down payment on a home purchase.

Government Loan

This is a mortgage loan either insured by FHA, guaranteed by the VA, or the Rural Housing Service.

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Hazard Insurance

Insurance required by the lender to guard against damage from fire, hurricanes, tornadoes, and other disasters. Additionally, hazard insurance protects you for personal liability, theft and vandalism. This is also known as homeowners insurance.

Homeowners Association Dues

Monthly fees to pay for the maintenance and amenities of a condominium complex or community.

High-Ratio Mortgage

A mortgage that exceeds 80% of the purchase price or appraised value of the property. This type of mortgage must be insured. To avoid the cost of the insurance, a 1st mortgage up to 80% is arranged and a 2nd mortgage for the balance (up to 90% of the purchase price).

Home Equity Line of Credit

A personal line of credit secured against the borrower's property. Usually, a second or junior lien recorded at the county recorder's office.

HUD-1 Settlement Statement

A closing document, that provides an itemized list of credits and charges, for both the buyer and the seller, based on the sales contract.

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Impound Account

An account specifically created by the lender to hold funds for the payment of property taxes and insurance. These funds are held as reserves on the borrowr's behalf.


A published financial benchmark used to help figure out the interest rate for an adjustable rate mortgage once the adjustment date occurs. Then you add the margin to get the fully indexed rate, your new interest rate.


Interest Rate

The borrower's annual cost of a loan indicated as a percentage. The interest rate does not include loan fees ( See APR).

Interest-Only Mortgage

A mortgage where only the monthly interest portion is paid every month. The full principal balance does not change during the interest lnly period.

Investment Property

Real estate property that is used to generate rental income. This can be a single family dwelling, duplex, triplex, quadplex, 5+ units (Apartment Building), or commercial property.

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Jumbo Loan

Sometimes called a non-conforming loan, the loan amount is more than the conforming loan limits set by Fannie Mae and Freddie Mac which is currently $453,100 nationally. However, for Arapahoe, Adams, Boulder, Denver, Eagle and other counties, a Colorado jumbo loan will not come into play until it is over $529,000.

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Loan Estimate (LE)

A Disclosure to help consumers who apply for a mortgage understand the important terms of the loan and estimated costs. The lender is obligated to provide this form to the borrower within three business days after they submit a loan application.

Loan to Value (LTV)

The ratio between the current principal loan balance and the appraised value of your home. Example: You apply for a $160,000 loan on a $200,000 property. $160,000 / $200,000 = 80. This is 80% LTV.

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A specific amount based on the loan program added to the index to compute the new interest rate of an adjustable rate mortgage.


A recorded document granting the lender a lien on your home to secure repayment of a loan.

Multi-family Residence (2 to 4 units)

A residential property consisting of 2 to 4 individual housing units (duplex, triplex, or quadplex).

Mortgage Insurance

A policy that lets mortgage lenders to recuperate a portion of their financial losses in case a borrower defaults on a loan. Consumers are able to purchase a home with just 3% down with mortgage insurance.

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Note Rate

A legal document with the interest rate specified in a mortgage note typically signed at closing.

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Origination Fee

Similar to a point, it is a fee paid to the lender or mortgage broker for originating the mortgage.


A property that the owner lives in as their primary residence.

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Per Diem Intrest

The accrued daily interest on a loan. To calculate, you simply multiply the current loan balance by the yearly interest rate, then divide the result by 365.


A lender's conditional agreement to lend a certain amount based on specific terms set by underwriting for a prospective home buyer.

Prepayment Penalty

Certain lenders apply a penalty that a borrower must pay if their loan is paid off before the specified term. It is a lump-sum amount that is due and payable besides the outstanding loan balance.


A prospective borrowers finds out if they qualify by providing employment and financial information to a licensed loan originator to determine their likelihood of qualifying for a home mortgage.


The lowest rate a financial institution charges its best customers.


this acronym stands for principal, interest, property taxes, and insurance, or your monthly mortgage payment.


An acronym used for private mortgage insurance. When th down payment is below 20% on a conventional loan, most lenders will require you to obtain private mortgage insurance.


The outstanding loan balance.

Promissory Note

The mortgage note with the actual interest rate you are promising to pay for a set period of time.

(PUD) - Planned Unit Development

A subdivision having common lots or areas for the usage by some or all of the owners of the individually owned lots.

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Rate Lock

The lender's commitment to guarantee the interest rate on an approved mortgage. Usually varies from 30 to 120 days.


Refers to paying off an existing mortgage loan with a new loan under different terms.
A mortgage loan is usually refinanced for these reasons:

1.) to obtain a better interest rate;
2.) to consolidate other debt(s) like credit cards, car loans, or junior liens into one loan;
3.) to lower the monthly payment amount (this will result in a longer term)
4.) to reduce risk (e.g. switching from a adjustable-rate to a fixed-rate loan)
5.) to free up cash (this will result in a longer term).


The amount you have in a savings or checking account in case of unexpected financial emergencies. Most lenders like to see reserves of at least two monthly mortgage payments. Some prefer more depending on the loan program.

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Second Mortgage

A second mortgage or line of credit secured by the property.

Second Home

A property a person lives in part-time apart from their primary residence.


A drawing or map detailing the property's specific boundaries, improvements, easements, right of way, encroachments and other physical features.


Once a mortgage loan closes, your mortgage payment will go to the loan servicer who collects your payments, may pay taxes and insurance through an escrow account, and handle any late payments. Lenders often sell or transfer servicing to another company, which means you will not be sending your mortgage payment to the original lender.

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The legal evidence of ownership and possession of a property.

Title Insurance

A policy that protects a buyer against errors or omissions or defects that affect legal ownership of the property.

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The person who approves or denies a home loan, based on the lender's underwriting guidelins and approval conditions.

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Variable Rate Mortgage

Also known as an adjustable-rate mortgage .

VA Loan

A Government mortgage loan that is guaranteed by the Department of Veterans Affairs (VA) for eligible members of the U.S. armed forces.

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