Glossary of VA Mortgage Terms


Acceleration clause. A provision in a mortgage that gives the lender the right to demand payment of the entire outstanding balance when the first monthly payment is missed.

Adjustable-rate mortgage (ARM). A mortgage that permits the lender to adjust its interest rate periodically on the basis of changes in a specified index.

Amortization. The gradual repayment of a mortgage by installments.

Amortization schedule. A timetable for payment of a mortgage showing the amount of each payment applied to interest and principal and the balance remaining.

Annual percentage rate (APR). The total yearly cost of a mortgage stated as a percentage of the loan amount; includes such items as the base interest rate, primary mortgage insurance, and loan origination fee (points).

Appraisal. A professional opinion of the market value of a property.

Appreciation. An increase in the value of a property due to changes in market conditions or other causes.

Assessed value. The valuation placed upon property by a public tax assessor for purposes of taxation.

Assumable mortgage. A mortgage that can be taken over ("assumed') by the buyer when a home is sold.

Assumption. The transfer of the seller's existing mortgage to the buyer.


Binder. A preliminary agreement, secured by the payment of earnest money, under which a buyer offers to purchase real estate.


Cap. A provision of an ARM limiting how much the interest rate or mortgage payments may increase or decrease.

Cash reserve. A requirement of some lenders that buyers have sufficient cash remaining after closing to make the first two monthly mortgage payments.

Clear title. A title that is free of liens or legal questions as to ownership of property.

Closing. A meeting at which a sale of a property is finalized by the buyer signing the mortgage documents and paying closing costs. Also called "settlement."

Closing costs. Expenses (over and above the price of the property) incurred by buyers and sellers in transferring ownership of a property. Also called "settlement costs."

Commitment letter. A formal offer by a lender stating the terms under which it agrees to lend money to a home buyer.

Condominium. A form of property ownership in which the homeowner holds title to an individual dwelling unit, an undivided interest in common areas of a multi-unit project, and sometimes the exclusive use of certain limited common areas.

Contingency. A condition that must be met before

Conventional mortgage. Any mortgage that is not insured or guaranteed by the federal government.

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

Cooperative. A type of multiple ownership in which the residents of a multi-unit housing complex own shares in the corporation that owns the property, giving each resident the right to occupy a specific apartment or unit.

Covenant. A clause in a mortgage that obligates or restricts the borrower and that, if violated, can result in foreclosure.

Credit report. A report of an individual's credit history prepared by a credit bureau and used by a lender in determining a loan applicant's creditworthiness.


Deed. The legal document conveying title to a property.

Deed of trust. The document used in some states instead of a mortgage; title is conveyed to a trustee rather than to the borrower.

Default. The failure to make a mortgage payment on a timely basis or to otherwise comply with other requirements of a mortgage.

Delinquency. A loan in which a payment is overdue but not yet in default.

Deposit. See Earnest money.

Depreciation. A decline in the value of property; the opposite of "appreciation."

Discount points. See Points.

Down payment. The part of the purchase price which the buyer pays in cash and does not finance with a mortgage.

Due-on-sale clause. A provision in a mortgage allowing the lender to demand repayment in full if the borrower sells the property securing the mortgage.


Earnest money. A deposit made by the potential home buyer to show that he or she is serious about buying the house.

Easement. A right of way giving persons other than the owner access to or over a property.




Hazard insurance. Insurance coverage that compensates for physical damage to a property from fire, wind, vandalism, or other hazards.

Homeowner's insurance. An insurance policy that combines personal liability coverage and hazard insurance coverage for a dwelling and its contents.

Homeowner's warranty. A type of insurance that covers repairs to specified parts of a house for a specific period of time. It is provided by the builder or property seller as a condition of the sale.


Interest. The fee charged for borrowing money.

Interest rate cap. A provision of an ARM limiting how much interest rates may increase or decrease per adjustment period or over the life of a mortgage. See also Lifetime cap.


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


Late charge. The penalty a borrower must pay when a payment is made after the due date.

Lease-Purchase Mortgage Loan. An alternative Fannie Mae financing option that allows low- and moderate-income home buyers to lease a home from a nonprofit organization with an option to buy. Each month's rent payments consists of PITI payments on the first mortgage, plus an extra amount that is earmarked for deposit to a savings account in which money for a down payment will accumulate.

Lien. A legal claim against a property that must be paid off when the property is sold.

Lifetime cap. A provision of an ARM that limits the highest rate that can occur over the life of the loan.

Loan commitment. See Commitment letter.

Loan servicing. The collection of mortgage payments from borrowers and related responsibilities of a loan servicer.

Loan-to-value percentage (LTV). The relationship between the unpaid principal balance of the mortgage and the appraised value (or sales price if it is lower) of the property.

Lock-in. A written agreement guaranteeing the homebuyer a specified interest rate provided the loan is closed within a set period of time. The lock-in also usually specifies the number of points to be paid at closing.


Mortgage. A legal document that pledges a property to the lender as security for payment of a debt.

Mortgage banker. A company that originates mortgages exclusively for resale in the secondary market.

Mortgage broker. An individual or company that for a fee acts as an intermediary between borrowers and lenders.

Mortgage insurance. See Private mortgage insurance.

Mortgage insurance premium (MIP). The fee paid by a borrower to FHA or a private insurer for mortgage insurance.

Mortgage margin. The set percentage the lender adds to the index value to determine the interest rate of an ARM.

Mortgage note. A legal document obligating a borrower to repay a loan at a stated interest rate during a specified period of time-, the mortgage note is secured by a mortgage.

Mortgage interest rate. The rate of interest in effect for the monthly payment due.

Mortgagee. The lender in a mortgage agreement.

Mortgagor. The borrower in a mortgage agreement.


Negative amortization. A gradual increase in the mortgage debt that occurs when the monthly payment is not large enough to cover the entire principal and interest due. The amount of the shortfall is added to the unpaid principal balance to create "negative" amortization.

Notice of default. A formal written notice to a borrower that a default has occurred and that legal action may be taken.


Origination fee. A fee paid to a lender for processing a loan application; it is stated as a percentage of the mortgage amount.

Owner financing. A property purchase transaction in which the property seller provides all or part of the financing.


Payment cap. A provision of some ARMs limiting the amount by which a borrower's payments may increase regardless of any interest rate increase; may result in negative amortization. See Adjustable-rate mortgage.

PITI. Stands for principal, interest, taxes, and insurance - the components of a monthly mortgage payment.

Planned unit developments (PUDs). A planned unit development is a project or subdivision that consists of common property that is owned and maintained by an owners' association for the benefit and use of the individual PUD unit owners.

Points. A one-time charge by the lender to increase the yield of the loan; a point is I percent of the amount of the mortgage.

Prepayment penalty. A fee that may be charged to a borrower who pays off a loan before it is due.

Prequalification. The process of determining how much money a prospective homebuyer will be eligible to borrow before a loan is applied for.

Principal. The amount borrowed or remaining unpaid; also, that part of the monthly payment that reduces the outstanding balance of a mortgage.

Private mortgage insurance (PMI). Insurance provided by non-government insurers that protect lenders against loss if a borrower defaults. Fannie Mae generally requires private mortgage insurance for loans with loan-to-value (LTV) percentages greater than 80 percent.

Purchase and sale agreement. A written contract signed by the buyer and seller stating the terms and conditions under which a property will be sold.


Qualifying ratios. Guidelines applied by the lenders to determine how large a loan to grant a homebuyer.


Radon. A radioactive gas found in some homes that in sufficient concentrations can cause health problems.

Rate lock. See Lock-in.

Real estate sales professional. A person licensed to negotiate and transact the sale of real estate on behalf of the property owner.

Real Estate Settlement Procedures Act (RESPA). A consumer protection law that requires lenders to give borrowers advance notice of closing costs.

Refinancing. The process of paying off one loan with the proceeds from a new loan using the same property as security.

Rent with option to buy. See Lease-Purchase Mortgage Loan.


Second mortgage. A mortgage that has a lien position subordinate to the first mortgage.

Secondary mortgage market. The buying and selling of existing mortgages.

Seller-take-back. An agreement in which the owner of a property provides financing, often in combination with an assumed mortgage.

Settlement. See Closing.

Settlement sheet. The computation of costs payable at closing that determines the seller's net proceeds and the buyer's net payment.

Survey. A drawing or map showing the precise legal boundaries a property, the location of improvements, easements, rights of way encroachments, and other physical features.


Tenancy by entirety. A type of joint ownership of property that provides right of survivorship and is available only to a husband and wife.

Tenancy in common. A type of joint ownership in a property without right of survivorship.

Title. A legal document evidencing a person's right to or ownership of a property.

Title company. A company that specializes in examining and insuring titles to real estate.

Title insurance. Insurance to protect the lender lender's policy) or the buyer (owner's policy) against loss arising from disputes over ownership of property.

Title search. A check of the title records to ensure that the seller is the legal owner of the property and that there are no liens or other claims outstanding.

Transfer tax. State or local tax payable when title passes from one owner to another.