Mortgage glossary: plain-English definitions, A to Z

A 1031 exchange lets an investor defer capital gains tax by selling an investment property and buying another of like kind, under Section 1031 of the tax code. Strict deadlines apply: 45 days to identify the replacement and 180 days to close on it, and the sale money must be held by a qualified intermediary. It does not apply to your primary home.

A 2-1 buydown is a temporary buydown that lowers the rate by two percentage points in the first year and one point in the second, before the full note rate applies from the third year on. Someone, often the seller or a builder, prepays the difference at closing. Lenders qualify you at the full rate, so the later payment is the one to plan around.

An adjustable-rate mortgage has an interest rate that is fixed for an initial period, commonly five, seven or ten years, and then adjusts on a schedule tied to a market index. Caps limit how far it can move at each adjustment and over the life of the loan. The useful question is what the payment would be at those caps, not at today's rate.

Amortization is how a fixed payment pays off a loan over its term. Each payment covers that month's interest first and puts the rest toward the balance. Early on, most of the payment is interest; in the final years, most of it is principal. The payment stays the same while the split between the two shifts every month.

APR is the yearly cost of a loan expressed as a percentage: the interest rate plus certain lender charges, such as points and origination fees. Federal law requires it on every Loan Estimate so offers can be compared on the same basis. It is a comparison tool, not the rate your monthly payment is calculated from.

An appraisal is a licensed appraiser's opinion of what a home is worth, ordered through the lender before a loan closes. The lender uses the lower of the appraised value or the purchase price to set the loan amount. If the appraisal comes in below the price, the difference has to be renegotiated or covered in cash.

An appraisal gap is the difference when a home appraises for less than the agreed price. The lender bases the loan on the lower appraised value, so the buyer covers the gap in cash, negotiates the price down, or walks away under an appraisal contingency. Some competitive offers include a clause agreeing to cover a gap up to a set amount.

An appraisal waiver, which Fannie Mae now calls value acceptance, lets some loans close without a traditional appraisal when the automated underwriting system is confident in the home's value from its own data. It is offered on some purchases and refinances, not all, and a borrower cannot simply request one: the system makes the offer, and the lender can still order an appraisal.

In Michigan, assessed value is the assessor's figure for your property, set at half of its estimated market value. It is not the number your tax bill is calculated on. Taxes are levied on taxable value, which is often lower. Estimating a tax bill from assessed value, or from the seller's bill, is how buyers end up surprised.

An assumable mortgage can be taken over by a buyer, who keeps the seller's rate, balance and remaining term. FHA, VA and USDA loans are generally assumable with the lender's approval; most conventional loans are not. The buyer still has to be approved by the lender and usually covers the difference between the price and the balance in cash or with a second loan.

An automated underwriting system is the software that Fannie Mae, Freddie Mac and the government loan programs use to assess a loan file and return a recommendation, along with the documents the lender must collect. Fannie Mae's is Desktop Underwriter and Freddie Mac's is Loan Product Advisor. A human underwriter still reviews the file against those findings.

Back-end ratio is the full debt-to-income ratio: your proposed housing payment plus every other monthly debt payment, divided by your gross monthly income. When a lender quotes a single DTI, this is usually the one. The limit depends on the loan program and on the rest of the file, such as credit and reserves.

A bank statement loan qualifies a self-employed borrower using the deposits on 12 or 24 months of personal or business bank statements instead of tax returns. It is a non-QM loan, so pricing and the down payment are usually higher than on a conventional loan. It helps when write-offs make taxable income look lower than what the business actually brings in.

The Board of Review is the local panel that hears appeals of property assessments, meeting in March in each city and township, with a few later sessions for specific corrections. If you believe the assessor's estimate of your home's market value is too high, appeal there first; the Michigan Tax Tribunal hears appeals the board does not resolve.

A refinance break-even point is the number of months it takes for the monthly benefit of a new loan to cover what it cost to get. Divide the total cost by the monthly benefit. If you expect to keep the loan longer than that, the refinance can pay for itself; if you do not, it may not.

A bridge loan is short-term financing that lets you use the equity in your current home toward the next one before the current home sells. It is repaid when the sale closes. It costs more than a standard mortgage and adds a payment for a while, so it fits best when the sale is close and the numbers are clear.

A buydown is money paid at closing to lower the interest rate, either for the whole loan, using discount points, or for the first year or two, as in a 2-1 buydown. The seller, the builder or the borrower can pay for it, depending on the program and the purchase agreement.

A buyer representation agreement is a written contract between you and the agent who helps you buy, setting out their duties and how they are paid. Since August 2024, agents working with buyers through a multiple listing service must have one signed before you tour a home. Compensation is negotiable, so agree on it in writing before you start.

A cap rate is a property's net operating income for a year divided by its price or value, written as a percentage. A $300,000 rental with $21,000 of net operating income has a 7% cap rate. It compares properties as if they were bought with cash, so it ignores financing; cash flow and cash-on-cash return show the effect of the mortgage.

Cash flow is what a rental leaves you each month or year after every cost, including the mortgage payment. Positive cash flow means the rent covers everything with money left over; negative means you are paying to own it. Estimates that assume full occupancy and no repairs overstate it, so build vacancy and maintenance in.

Cash to close is the total you bring to closing: the down payment plus closing costs and prepaid items, minus credits such as earnest money already paid, seller concessions and lender credits. The Loan Estimate gives an early figure and the Closing Disclosure gives the final one. Confirm the wiring instructions by phone before you send it.

Cash-on-cash return is a rental's yearly cash flow divided by the cash you put in: the down payment, closing costs and initial repairs. $6,000 of cash flow on $75,000 invested is an 8% return. Unlike a cap rate, it reflects your financing, so the same property shows different returns with different down payments.

A cash-out refinance replaces your current mortgage with a larger one and pays you the difference in cash at closing. It resets the whole balance to a new rate and term, which is the part people underestimate. Compare it with a home equity loan or a HELOC, which leave the first mortgage in place.

A Certificate of Eligibility is the VA document that confirms your eligibility for VA home loan benefits and shows your available entitlement. Lenders can usually request it online in minutes. If you have used a VA loan before, the certificate shows whether your entitlement was restored or how much remains, which affects your next loan.

Clear to close means the underwriter has signed off on every condition and the lender is ready to schedule closing. The Closing Disclosure must reach you at least three business days before you sign, so the two usually happen close together. Until closing, avoid new credit, large purchases and job changes, because the lender may check again.

Closing costs are the fees and prepaid items due when a loan closes, separate from the down payment. They include lender charges, the appraisal, title insurance, recording fees and the first deposits into escrow. Every lender must list them on a Loan Estimate within three business days of your application, so they can be compared line by line.

The Closing Disclosure is the five-page form showing the final terms and costs of your loan, and you must receive it at least three business days before closing. Compare it line by line with your Loan Estimate. Some charges cannot increase at all, some can rise only within a set limit, and a few, such as prepaid interest, can change.

A co-borrower shares responsibility for the mortgage and has their income, debts and credit counted in the application. A co-signer who will not live in the home is often called a non-occupant co-borrower, and some programs allow one. Either way, the loan appears on that person's credit and counts against their own future borrowing.

Combined loan-to-value ratio adds every loan against a home, such as a first mortgage and a home equity line, and divides the total by the home's value. Lenders use it to decide whether there is room for a second loan or a cash-out refinance. Each program and lender sets its own maximum.

Comparable sales are recent sales of similar homes nearby that an appraiser or agent uses to estimate a home's value. Good comparables match on size, age, condition and location, and they sold recently. Adjustments are made for differences, such as an extra bathroom or a finished basement. Comps explain most appraisals, and most disagreements about price.

Compensating factors are strengths in a loan file that offset a weakness, such as a higher debt-to-income ratio. Common ones are reserves, a strong credit history, little change in your housing payment, or steady income over many years. Some programs, FHA's manual underwriting for example, spell out which factors allow a higher ratio.

A conditional approval means an underwriter has approved the loan subject to conditions: documents or explanations still needed before closing, such as an updated pay stub, a bank statement or a letter about a deposit. It is a strong step, but not final. The loan moves to clear to close once every condition is met.

A conforming loan meets Fannie Mae and Freddie Mac's rules, including a maximum loan amount set each year for each county. A loan above that limit is a jumbo loan, and one that falls outside the agencies' rules in other ways is non-conforming. The limit changes every January, so check the current figure for the county where you are buying.

A construction loan funds the building of a home, paying the builder in stages as the work is inspected. A construction-to-permanent loan converts to a regular mortgage once the home is finished, with one closing. Lenders review the builder, the plans and the budget, and you pay interest only on what has been drawn during construction.

A contingency is a condition in a purchase agreement that lets the buyer cancel without losing earnest money if it is not met. The common ones cover financing, the appraisal, the home inspection and the sale of the buyer's current home. Each carries a deadline, and once it passes, the protection usually goes with it.

A Conventional 97 is a Fannie Mae or Freddie Mac loan with a minimum down payment of 3%, so the loan is 97% of the price. It is generally for first-time buyers and has no income limit, unlike HomeReady and Home Possible. Private mortgage insurance applies, and it can be removed later as the balance falls and equity builds.

A conventional loan is a mortgage that no government agency insures, usually sold to Fannie Mae or Freddie Mac. Down payments start at 3% for some buyers, and private mortgage insurance applies when the loan is more than 80% of the value, though it can be removed later. Credit score and down payment move the pricing more than on an FHA loan.

A counteroffer is a response to an offer that changes one or more of its terms, such as the price, the closing date or the contingencies. It rejects the original offer and puts a new one on the table, which the other side can accept, reject or counter again. Nothing is binding until both sides sign the same version.

A mortgage credit report combines your files from Equifax, Experian and TransUnion into one report, often called a tri-merge. It lists your accounts, balances, payment history, collections and recent inquiries, along with your scores. Errors happen, so check your free reports at AnnualCreditReport.com before you apply rather than during underwriting.

A credit score is a three-digit number, most often a FICO score, that summarizes how you have handled credit. Mortgage lenders usually pull scores from all three credit bureaus and use the middle one; with two borrowers, the rules differ by program. The score affects which programs fit and the pricing, so it matters before you apply, not after.

Credit utilization is the share of your available revolving credit, mostly credit cards, that you are using. A $1,500 balance on a $5,000 limit is 30% utilization. It weighs heavily in credit scores, so paying balances down before a lender pulls credit can help. It is different from debt-to-income ratio, which measures payments against income.

Debt service coverage ratio compares a rental property's income with its housing payment: rent divided by principal, interest, taxes, insurance and any association dues. A DSCR loan qualifies an investment property on that ratio instead of the borrower's personal income. A ratio above 1.0 means the rent covers the payment; each lender sets its own minimum.

Debt-to-income ratio is your total monthly debt payments, including the new housing payment, divided by your gross monthly income. $2,100 of payments on $7,000 of income is a DTI of 30%. Lenders use it to judge how much room your income has left, and the limit depends on the loan program rather than one national rule.

A deed is the signed document that transfers ownership of real estate from the seller to the buyer. It is recorded with the county register of deeds so the public record shows the new owner. A warranty deed, the common kind in a sale, includes the seller's promise that the title is good. The deed is separate from the mortgage.

Discount points are an upfront fee paid to lower the interest rate for the life of the loan. One point costs 1% of the loan amount. How much a point lowers the rate varies by lender and by day, so the useful question is how many months of lower payments it takes to earn the cost back.

A down payment is the part of the purchase price you pay up front, so the loan covers the rest. The minimum depends on the loan program, and some programs require none at all. A larger down payment lowers the loan amount and can remove mortgage insurance, but cash held back for reserves and closing costs matters too.

Down payment assistance is money from a state, county, city or nonprofit program that helps cover a down payment or closing costs. It usually comes as a grant or a second loan that may be forgiven over time or repaid when you sell or refinance. Most programs set income and purchase price limits and require a homebuyer education course.

Earnest money is the deposit a buyer puts down when an offer is accepted, held by a title company or broker until closing. It shows the seller you are serious and is usually credited toward your down payment or closing costs. Whether you get it back if the deal falls apart depends on the contingencies in your contract.

An escalation clause is part of an offer that automatically raises your price above a competing offer, by a set increment, up to a cap you choose. It usually requires the seller to show you the competing offer. It helps in a bidding war, but it also tells the seller your maximum, so set the cap at a number you could actually live with.

An escrow account is held by your loan servicer to pay your property taxes and homeowners insurance. Part of each monthly payment goes into it, and the servicer pays the bills when they come due. Once a year the servicer reviews the account, which is where a higher Michigan tax bill after a purchase shows up as a higher payment.

An escrow analysis is the yearly review your servicer does of your escrow account, comparing what it collected with what it paid for taxes and insurance. If taxes or premiums went up, your payment rises; a surplus of $50 or more is refunded if you are current. Federal rules cap the cushion a servicer can hold at two months of payments.

An escrow shortage happens when your escrow account will not hold enough to pay the coming year's taxes and insurance, usually because one of them went up. The servicer spreads the shortage over the next 12 payments or lets you pay it at once. In Michigan, the uncapping of taxable value after a purchase is a common cause.

The federal funds rate is the Federal Reserve's target for overnight lending between banks. It moves short-term borrowing costs directly, but mortgage rates follow longer-term bond markets, so they often move before a Fed decision, or differently from it. A Fed cut does not automatically mean a lower mortgage rate.

An FHA 203(k) loan finances the purchase or refinance of a home and the cost of repairing it in one mortgage. The limited version covers smaller, non-structural work; the standard version allows major renovation and requires a HUD consultant. Repair money is held and paid out as the work is done, not handed to the buyer at closing.

An FHA loan is a mortgage insured by the Federal Housing Administration, which lets lenders accept lower down payments and credit scores than many conventional loans. It carries an upfront and an annual mortgage insurance premium. The home must be your primary residence and meet FHA's property standards, and loan amounts are capped by county.

The FHA loan limit is the largest mortgage FHA will insure in a given county, set each year from local home prices. Higher limits apply in more expensive areas and for two to four unit homes. A home priced above the limit can still be bought with FHA financing if the difference comes from a larger down payment.

A final walk-through is the buyer's last look at the home, usually within a day or two of closing. It confirms the home is in the condition the contract promised: agreed repairs done, included items still there, nothing damaged during the move out. It is not a second inspection, but problems found here are far easier to fix before you sign.

For most mortgage programs, a first-time homebuyer is someone who has not owned a home in the past three years, so a previous owner can count again. The definition matters because some loans and down payment assistance programs are limited to first-time buyers. Each program sets its own definition, so confirm it before you rely on it.

A fixed-rate mortgage keeps the same interest rate for the life of the loan, so principal and interest never change. Terms of 30 and 15 years are the most common. Compared with an adjustable-rate loan, the tradeoff is usually a higher starting rate in exchange for certainty, which matters most if you plan to keep the home a long time.

A float-down is a rate lock feature that lets you take a lower rate if market rates drop after you lock, usually once and only if they drop by a set amount. Some lenders include it, others charge for it, and many do not offer it. Ask how it works before you lock rather than after rates move.

Flood insurance is a separate policy that covers flood damage, which standard homeowners insurance excludes. It is required when a home with a federally backed or regulated mortgage sits in a special flood hazard area, and it is often worth buying even outside one. Policies come from the National Flood Insurance Program or from private insurers.

A special flood hazard area is land FEMA maps as having at least a 1% chance of flooding in any year. If a home there carries a mortgage from a federally regulated or insured lender, flood insurance is required. FEMA's maps change, so check the current map for the specific property before you make an offer, not after.

Forbearance is an agreement with your servicer to pause or reduce payments for a set time during a hardship, such as a job loss or an illness. The skipped amount is not forgiven: it is repaid later, through a lump sum, a repayment plan, a modification or by adding it to the end of the loan. Call the servicer before you miss a payment.

A foreclosure is a home a lender has taken back after the owner stopped paying, often sold at auction or later by the lender as bank-owned property. Foreclosures are usually sold as is, sometimes with limited access before purchase, so the inspection, the title and the home's condition deserve extra attention. Financing can be limited if major repairs are needed.

Front-end ratio is your proposed housing payment alone divided by your gross monthly income. The housing payment includes principal, interest, property taxes, homeowners insurance, mortgage insurance and association dues. Some programs set a separate limit on it; many look mainly at the back-end ratio, which adds your other debts.

Gift funds are money a relative or other eligible donor gives you toward a down payment or closing costs, with no expectation of repayment. Lenders require a signed gift letter and proof the money moved from the donor's account to yours. Who can give, and how much of the down payment can be a gift, depends on the program.

A government-backed loan is a mortgage that a federal agency insures or partly repays to the lender if the borrower defaults: FHA, VA and USDA loans. That backing lets lenders accept lower down payments or credit scores than many conventional loans. Each program has its own fees, property standards and eligibility rules.

A mortgage grace period is the window after the due date before a late fee applies, commonly 15 days; your note sets the exact terms. A payment made within the grace period is not late. A payment 30 or more days late can be reported to the credit bureaus, which matters for any loan you apply for later.

A hard money loan is a short-term loan from a private lender, based mainly on the property's value rather than the borrower's income. Investors use them to buy and renovate quickly, then refinance or sell. They cost more than a mortgage, carry short terms, and the exit plan matters as much as the purchase.

A HELOC is a revolving line of credit secured by your home, sitting behind your first mortgage. You draw on it as needed during a draw period, often paying interest only, then repay it over a set term. The rate is usually variable. It leaves your existing first mortgage, and its rate, untouched.

Home equity is the part of your home's value you own outright: what the home would sell for, minus every loan secured by it. It grows as you pay down the balance and as values rise. Equity and money you can actually borrow are not the same number, because lenders cap how much of it a new loan can use.

A home equity loan is a second mortgage that pays you a lump sum, repaid with fixed payments over a set term, while your first mortgage stays in place. It suits a one-time cost with a known amount. Compare it with a HELOC, which you draw on as needed, and with a cash-out refinance, which replaces the first mortgage.

A home inspection is a professional inspector's visual review of a home's structure and systems: roof, foundation, electrical, plumbing, and heating and cooling. The buyer usually pays for it and schedules it during the inspection contingency period. It reports the home's condition; it is not an appraisal and does not set the value.

Home Possible is Freddie Mac's conventional loan for borrowers with income at or below 80% of the area median, with a minimum down payment of 3% and reduced mortgage insurance. The down payment can come from gifts and assistance programs. Like HomeReady, it is not limited to first-time buyers, and it allows one to four unit homes.

A home sale contingency makes a purchase depend on the buyer selling their current home by a set date. It protects the buyer from owning two homes, but sellers often see it as a weaker offer, and many accept it only with a kick-out clause that lets them keep marketing the home. It is one of several ways to handle buying before selling.

A home warranty is a service contract, often a one-year plan, that covers the repair or replacement of covered systems and appliances for a fee plus a charge per service call. It is not homeowners insurance, which covers damage from events like fire, and it usually excludes problems that existed before. Sellers sometimes pay for one at closing.

Homebuyer education is a course, often online, that covers budgeting, the loan process and owning a home. Some programs require it, including HomeReady and Home Possible when every borrower is a first-time buyer, and most down payment assistance programs. It takes a few hours and ends with a certificate you send to your lender.

A homeowners association is the organization that manages shared areas and enforces rules in a subdivision or condominium, funded by dues each owner pays. Lenders count the dues in your monthly housing payment when they calculate your debt-to-income ratio. Before you buy, read the rules, the budget and any planned special assessments.

Homeowners insurance covers damage to your home and belongings from events such as fire, wind and theft, plus liability if someone is hurt on the property. Lenders require a policy in place before closing, and the premium is usually paid through escrow. Flood damage is not covered by a standard policy, so it needs its own.

HomeReady is a Fannie Mae conventional loan for borrowers with income at or below 80% of the area median, with a minimum down payment of 3% and reduced mortgage insurance. It is not limited to first-time buyers. Income from a boarder or a rental unit can sometimes count, and homebuyer education is required when every borrower is a first-time buyer.

The Homestead Property Tax Credit is a Michigan income tax credit that refunds part of the property tax, or rent, paid by households below an income limit. It is claimed on your state income tax return each year. It is separate from the Principal Residence Exemption, which lowers the tax bill itself and is filed with the local assessor.

House hacking means buying a home you live in while renting part of it, such as the other units of a duplex or a basement apartment, so the rent offsets your housing cost. Because you occupy the property, owner-occupied loan programs can apply. Check local zoning and rental rules first, especially for a unit inside a single-family home.

The index is the published market rate an adjustable-rate mortgage follows after its fixed period, most often the Secured Overnight Financing Rate, or SOFR, on newer loans. At each adjustment the lender takes the current index and adds the loan's margin to set your new rate, within the caps. The index moves; the margin does not.

The interest rate is the yearly cost of borrowing, as a percentage of the balance, and it sets your principal and interest payment. It depends on the market that day and on your loan: credit score, down payment, loan type, occupancy and whether you pay points. The rate alone does not show total cost; the APR and the fees do.

An interest-only mortgage lets you pay only interest for a set period, often 10 years, before payments rise to cover principal over the remaining term. The early payment is lower, but those payments build no equity. Today they are non-QM loans, and the payment after the interest-only period ends is the number to plan around.

A jumbo loan is a mortgage larger than the conforming loan limit for its county, so Fannie Mae and Freddie Mac cannot buy it. Each lender sets its own rules, typically asking for stronger credit, more reserves and a larger down payment than on a conforming loan. Pricing varies widely between lenders, which makes comparing more than one worthwhile.

A land contract is a home sale the seller finances. The buyer moves in, pays the seller in installments and holds what is called equitable title, while the seller keeps the deed until the contract is paid off, often by refinancing into a mortgage. In Michigan, signing one counts as a sale for property taxes, so taxable value uncaps the next year.

A lease option, often called rent to own, lets a tenant rent a home with the right, but not the obligation, to buy it later at an agreed price. The tenant usually pays an upfront option fee, and sometimes extra rent credited toward the purchase. If the tenant does not buy, that money is usually lost, so read the contract terms carefully.

A lender credit is money the lender puts toward your closing costs in exchange for a higher interest rate. It is the reverse of paying discount points. It can make sense if you expect to sell or refinance within a few years, because you pay less up front and the higher rate has less time to cost you.

A letter of explanation is a short signed note an underwriter asks for to account for something in your file, such as a large deposit, a credit inquiry, a gap in employment or an address. Answer the specific question, briefly, and attach documents if they help. A clear letter usually clears the condition; a vague one usually brings another request.

A lien is a legal claim against a property that secures a debt, such as a mortgage, unpaid property taxes or a contractor's unpaid bill. Liens are recorded in the public record and usually must be paid off or released before a sale can close with clear title. A title search is what finds them.

A Loan Estimate is the standard three-page form every lender must give you within three business days of an application. It shows the loan amount, interest rate, monthly payment, closing costs and cash to close in the same layout from every lender, which is what makes a side-by-side comparison possible. Receiving one does not commit you to anything.

A loan modification permanently changes the terms of your existing mortgage, such as the rate, the term or the balance, to make the payment affordable after a hardship. It is arranged with your servicer rather than a new lender, and requires documents showing the hardship and your income. It is different from a refinance, which replaces the loan.

A mortgage loan originator, or loan officer, is the licensed person who takes your application, explains your options and guides the loan to closing. Federal law requires every loan officer to be registered or licensed through the NMLS, and loan officers at non-bank companies must also hold a license in each state where they lend.

A loan servicer is the company that collects your monthly payment, manages your escrow account and handles payoff requests. It may not be the lender that made the loan, and servicing can be sold. If it is, both companies must notify you, and for 60 days a payment sent on time to the old servicer cannot be treated as late.

The loan term is how long you have to repay the mortgage, most often 30 or 15 years. A shorter term means a higher monthly payment but far less total interest, and usually a lower rate. A longer term lowers the payment and leaves room in the budget. Many borrowers take 30 years and pay extra when they can.

Loan-level price adjustments are charges Fannie Mae and Freddie Mac add to conventional loans based on risk factors such as credit score, loan-to-value ratio, occupancy and property type. Lenders pass them on through a higher rate or added points. They explain why two borrowers can be offered different pricing on the same day.

Loan-to-value ratio is the loan amount divided by the home's appraised value or price, whichever is lower. A $360,000 loan on a $400,000 home is 90% LTV. It drives whether you pay mortgage insurance, which programs fit, and how much equity you can borrow against later.

The margin is the fixed number of percentage points an adjustable-rate mortgage adds to its index to set the rate after the fixed period. It is set at closing and does not change for the life of the loan. Two ARMs with the same starting rate can behave very differently later if their margins differ, so compare margins too.

A mill is one dollar of property tax for every $1,000 of taxable value, and your millage rate is the total of the mills levied by your city or township, county, school district and other local units. Rates differ a lot between neighboring communities. Multiply taxable value by the total mills, then divide by 1,000, to estimate the bill.

A mortgage is the document that pledges a home as security for a loan, recorded in the county records. In everyday speech the word means the loan itself. If the loan is not repaid as agreed, the mortgage is what allows the lender to foreclose. It is released, and the release recorded, when the loan is paid off.

A mortgage broker is a licensed company that takes your application and places the loan with one of the wholesale lenders it is approved with, rather than lending its own money. One application can be compared across several lenders' programs and pricing. The lender underwrites and funds the loan, and how the broker is paid is disclosed on your Loan Estimate.

Mortgage insurance protects the lender, not you, if a loan made with a small down payment defaults. Conventional loans call it PMI, and you can have it removed once you reach enough equity. FHA calls it MIP, and on most FHA loans it lasts for the life of the loan. VA loans charge a one-time funding fee instead.

On a conventional loan, you can ask to cancel private mortgage insurance once the balance reaches 80% of the home's original value, and it ends automatically at 78%, as long as payments are current. Some lenders allow removal earlier based on a new appraisal. FHA mortgage insurance follows its own rules, and often the only way out is a refinance.

The Michigan State Housing Development Authority, MSHDA, runs the state's homebuyer programs, including MI Home Loan mortgages and down payment assistance. They are offered through participating lenders, with income and purchase price limits, and usually require a homebuyer education course. Amounts and limits change, so check the current figures before you plan around them.

A two to four unit property, such as a duplex or fourplex, is still financed as residential real estate. If you live in one unit, owner-occupied programs, including FHA and VA, can apply, and lenders may count part of the expected rent from the other units as income. Five or more units is commercial lending.

Negative equity, or being underwater, means you owe more on the home than it is worth. It makes selling or refinancing hard, because the payoff is more than the home would bring. What is possible depends on the loan: some programs allow streamline refinances without an appraisal, and otherwise time and payments rebuild equity.

Net operating income is a rental property's yearly income minus its operating expenses: taxes, insurance, maintenance, management, any utilities the owner pays, and an allowance for vacancy. It leaves out the mortgage payment and income tax. It is the number behind the cap rate and the starting point for judging whether a property can carry a loan.

An NMLS ID is the unique number the Nationwide Multistate Licensing System assigns to every mortgage company and loan officer. You can look one up for free on NMLS Consumer Access to see where a company or person is licensed and whether any regulatory actions are on record. Align Lending's is 2041154, and Samantha Shelton's is 1647301.

A no-closing-cost refinance does not make the costs disappear. They are covered by a lender credit in exchange for a higher rate, or added to the loan balance. It can make sense if you expect to move or refinance again within a few years; over a long hold, the higher rate usually costs more than the fees would have.

A non-QM loan is a mortgage outside the federal qualified mortgage rules, used when income or circumstances do not fit standard guidelines: self-employed borrowers using bank statements, investors using rental income, or recent credit events. Lenders still must verify the ability to repay. Expect a larger down payment and higher pricing than on a conforming loan.

Occupancy is how you will use the home: as your primary residence, a second home or an investment property. It changes the programs available, the down payment and the pricing, and lenders verify it. Telling a lender you will live in a home you plan to rent out is mortgage fraud, so be precise about your plans.

An origination fee is what a lender or broker charges to process and arrange a loan, listed in section A of the Loan Estimate as origination charges. It may be a flat amount or a percentage of the loan. Because it sits in the zero-tolerance group, it cannot go up at closing unless something about the loan changes.

The par rate is the interest rate, on a given day, that comes with no discount points and no lender credit. Rates below it cost points; rates above it pay a credit toward closing costs. Knowing where par sits makes it easier to compare offers that mix rates and fees in different ways.

PITI stands for principal, interest, taxes and insurance, the four parts of a typical monthly mortgage payment. Lenders use the full PITI, plus mortgage insurance and association dues, when they calculate your debt-to-income ratio. A payment quoted without taxes and insurance understates it, and in Michigan the taxes are the part most likely to change after you buy.

A plat map is a recorded drawing of how a piece of land is divided into lots, showing boundaries, dimensions, easements and streets. It is kept with the county's land records. Buyers use it to confirm what they are buying and to spot easements, such as a utility strip, that limit what can be built.

A pocket listing is a home sold privately, without being posted to the multiple listing service where most buyers' agents search. It can mean less competition for a buyer who hears about it, but also less information about value and fewer comparable offers. Have the price checked against recent sales before you commit.

A preapproval is a lender's written statement, based on a review of your credit, income and assets, of how much it is prepared to lend you. It is stronger than a prequalification, which usually relies on what you report. It is not final approval: the property, the appraisal and underwriting still have to clear.

Prepaid items are costs paid at closing for things that come after it: interest from the closing date to the end of the month, the first year of homeowners insurance, and the opening deposit into your escrow account for taxes and insurance. They are not lender fees, but they add to your cash to close, and in Michigan the tax deposit can be large.

A prepayment penalty is a fee for paying off a loan early, through a sale, a refinance or large extra payments. Federal rules prohibit them on many home loans and cap them on the rest, and FHA, VA and USDA loans do not allow them. Your Loan Estimate says plainly whether a loan has one, so check that line before you sign.

A prequalification is an early estimate of what you might borrow, usually based on information you report rather than documents a lender has checked. It is a useful first conversation, but sellers give it little weight. A preapproval, based on verified credit, income and assets, carries more weight with a seller.

Principal is the amount you borrowed that you still owe; interest is what the lender charges for lending it. Together they are the loan part of your monthly payment. On a fixed-rate loan that amount stays the same, while the share going to principal grows each month. Taxes and insurance are added on top.

Michigan's Principal Residence Exemption lowers the tax on the home you live in by exempting it from up to 18 mills of local school operating tax. It does not carry over from the seller. A buyer files their own affidavit with the local assessor: by June 1 for that year's summer and winter bills, or by November 1 for the winter bill.

The promissory note is your written promise to repay the loan: the amount, the interest rate, the payment schedule and what happens if you pay late. It is separate from the mortgage, which pledges the home as security for that promise. You sign both at closing, and the lender or a later owner of the loan holds the note.

The Property Transfer Affidavit, Form 2766, tells the local assessor that ownership has changed, which leads to the uncapping of taxable value. The buyer must file it within 45 days of the transfer, and a late filing carries a daily penalty. Title companies often handle it, but confirm it was filed, along with your Principal Residence Exemption affidavit.

A purchase agreement is the contract between buyer and seller that sets the price, the earnest money, the contingencies, the closing date and what stays with the house. Once both sides sign it, the timelines in it start running. The lender works from it too, so a change to the price or terms after signing needs an amendment both sides sign.

A qualified mortgage is a loan that meets federal ability-to-repay standards set by the CFPB, including limits on points and fees and a ban on features such as negative amortization and interest-only payments. Most conventional, FHA, VA and USDA loans are qualified mortgages. A loan outside those rules is called non-QM.

Rate caps limit how far an adjustable-rate mortgage's rate can move: at the first adjustment, at each one after that, and over the life of the loan. They are often written as three numbers, such as 2/1/5. The lifetime cap tells you the highest the rate can go, and the payment at that rate is the one worth checking first.

A rate lock is a lender's commitment to hold an interest rate and its pricing for a set period while your loan is processed, commonly 30 to 60 days. If market rates rise during the lock, yours does not move. If the lock expires before closing, extending it can cost money, which is why the closing timeline matters when you choose its length.

A rate-and-term refinance replaces your mortgage with a new one to change the interest rate, the loan term or both, without taking cash out. Closing costs still apply, so the question is how long it takes the monthly benefit to cover them. Shortening the term can raise the payment even when the rate falls.

A recast lowers your monthly payment by applying a lump sum to the principal and recalculating the payment over the remaining term, keeping the same rate. Not every loan allows it, government loans generally do not, and servicers usually charge a small fee. It is an alternative to refinancing when you have cash and like your rate.

Recording fees are what the county register of deeds charges to put the deed and the mortgage into the public record. In Michigan the fee per document is set by state law, and recording is what makes the new owner and the lender's lien official. They appear in the taxes and government fees section of the Loan Estimate.

A renovation loan rolls the cost of planned improvements into a purchase or refinance mortgage, based on the home's value after the work is done. FHA 203(k), Fannie Mae HomeStyle and VA renovation loans are common types. They need contractor bids and plans before closing, and the money is released in stages as the work is completed.

Lenders can count rent toward your qualifying income, but rarely all of it. For a property you are buying, many use about 75% of the expected rent, from a lease or an appraiser's estimate, to allow for vacancy and upkeep. For rentals you already own, they usually look at your tax returns. The details vary by program.

Reserves are money left after your down payment and closing costs, counted in months of your new housing payment. Some loans require them, such as investment properties, multi-unit homes and larger loans, and they can strengthen a file in other ways. Checking, savings and part or all of vested retirement balances can count, depending on the program.

Residual income is what a VA borrower has left each month after the housing payment, debts, taxes and other obligations. The VA sets minimums that vary by family size and region of the country. It measures breathing room in a way a single debt-to-income ratio cannot, and it is why VA files look at more than the ratio.

A reverse mortgage lets homeowners 62 and older borrow against their equity without monthly payments; the balance grows and is repaid when the home is sold or the last borrower leaves it. The most common type is the FHA-insured Home Equity Conversion Mortgage, or HECM, which requires counseling first. Taxes, insurance and upkeep still have to be paid.

Seasoned funds are money that has sat in your account long enough to show where it came from, usually the period covered by your last two monthly statements. Lenders want the source of any large deposit inside that window, which is why moving money around just before you apply creates paperwork. Leave it where it is and ask first.

Seller concessions are costs the seller agrees to pay on the buyer's behalf, usually part of the closing costs or a rate buydown, written into the purchase agreement. Each loan program caps how much a seller can contribute, measured as a share of the price. Money the seller pays toward your costs is money you do not need to bring to closing.

A seller disclosure is the form on which a seller reports known problems with the home, such as water in the basement or a roof leak. Michigan requires a Seller Disclosure Statement for most home sales, and a buyer who receives it after making an offer has a short window to cancel. It reflects what the seller knows, so it is no substitute for an inspection.

A septic system treats a home's wastewater on the property instead of sending it to a city sewer. It is common in rural Michigan, needs its own inspection, and needs pumping every few years. Some loan programs and some local health departments require an evaluation before a sale, so ask early who orders it and what the report has to show.

A short sale is a sale in which the lender agrees to accept less than the seller owes, because the home is worth less than the mortgage. The lender has to approve the price, which can take weeks or months, and the home is usually sold as is. Buyers need patience and an offer that still works if approval is slow.

A short-term rental is a home rented by the night or the week, often through a booking platform. Income can be higher and less steady than a long-term lease, and many Michigan cities and townships license, limit or ban them. Lenders treat the income differently by program, so confirm how it will be counted before you rely on it.

State equalized value is the assessed value after the county and the state review assessments to keep them uniform, and in most years the two are the same number. In Michigan it is set at half of the property's estimated market value. After you buy, your taxable value resets to the SEV the following year.

A streamline refinance lets an existing FHA or VA borrower refinance into a new loan of the same type with less paperwork, often without a new appraisal. VA calls its version an Interest Rate Reduction Refinance Loan, or IRRRL. The new loan has to show a benefit to the borrower, and closing costs still apply.

Subordination is an agreement by a second lender, such as the holder of a HELOC, to stay in second position behind a new first mortgage when you refinance. Without it, the new loan cannot close as a first mortgage. The HELOC lender has to review the request, which can take a few weeks, so start it early.

Many Michigan communities send two property tax bills a year, a summer bill around July and a winter bill around December, each covering different levies. At a sale, the purchase agreement sets how they are split between buyer and seller, and local customs vary, so read that clause. An escrow account pays both bills for you.

Taxable value is the number your Michigan property tax is calculated on. While one owner keeps a home, it can rise each year by no more than inflation or 5%, whichever is lower. When the home sells, that cap ends. The year after the sale, taxable value resets to the state equalized value, about half of market value, and the tax bill usually rises with it.

A title company searches the title, issues title insurance and, in Michigan, usually runs the closing: it holds the funds, prepares the settlement figures, records the deed and the mortgage, and pays everyone. Buyers can often choose their own, and that choice affects some of the fees on the Loan Estimate.

Title insurance protects against claims on a property's ownership that were missed before closing, such as an old lien or a recording error. A lender's policy protects the lender and is required on most mortgages. An owner's policy protects you, costs a one-time premium at closing, and lasts as long as you or your heirs own the home.

A title search is a title company's review of public records to confirm the seller owns the property and to find liens, unpaid taxes, judgments or easements. Problems it finds are resolved before closing, and the results become the basis for the title insurance policy. The search looks backward; title insurance protects against what it missed.

Michigan's real estate transfer tax is charged when property changes hands: $3.75 for every $500 of the price for the state, plus $0.55 per $500 for the county, $4.30 per $500 in all. By custom the seller pays it at closing, though the purchase agreement can say otherwise. Some transfers are exempt, and some sellers of a principal residence can claim the state portion back.

Uncapping is what happens to a Michigan home's taxable value after it sells. The yearly cap that protected the previous owner ends, and the year after the sale, taxable value resets to the state equalized value, roughly half of market value. A buyer's tax bill can be far higher than the seller's, so plan the payment on the buyer's number.

Underwriting is the lender's review of a loan file before final approval: verifying income, assets, credit and debts, and confirming the property through the appraisal and title. The underwriter may approve, deny, or approve with conditions, which are documents or explanations still needed. Most delays in a purchase come from conditions that arrive late.

A USDA loan is a mortgage backed by the U.S. Department of Agriculture for homes in eligible rural and suburban areas, with no down payment required. Household income must fall under the program's limit for the area, and the home must be your primary residence. Large parts of Michigan outside the bigger cities are eligible by location, which surprises many buyers.

The VA funding fee is a one-time charge on most VA loans that helps pay for the program. It varies by loan type, down payment and whether you have used VA financing before, and it can be paid in cash or added to the loan. Veterans receiving VA disability compensation, and some others, are exempt.

A VA loan is a mortgage for eligible veterans, service members and some surviving spouses, backed by the Department of Veterans Affairs. Most borrowers can buy with no down payment and no monthly mortgage insurance, though a one-time funding fee usually applies. Eligibility comes from service, documented on a Certificate of Eligibility, and the benefit can be used more than once.

Vacancy is the share of time a rental sits empty, or the income lost while it does. Investors and lenders build an allowance for it into projections, often a set percentage of rent, even for a property that is full today. One empty month a year is about 8% of the year's rent.

A verification of employment is the lender's confirmation, directly with your employer or through a database, that you work where you say and earn what you report. Most lenders check again within days of closing. A job change, reduced hours or a gap after you apply can delay or end an approval, so talk to your loan officer first.

A warrantable condo is one whose condominium project meets Fannie Mae or Freddie Mac standards, covering things like owner occupancy, the association's budget and reserves, and how many units one owner holds. Financing a unit in a non-warrantable project is possible, but with fewer options and usually a larger down payment. FHA and VA keep their own lists of approved projects.

A wholesale lender makes mortgages through mortgage brokers instead of directly to the public. The broker takes the application and helps document the file; the wholesale lender sets the pricing, underwrites, funds the loan and either keeps it or sells it. Your closing documents name the lender, and a loan servicer, possibly a different company, collects the payments.

Wire fraud at closing is a scam in which criminals send fake wiring instructions, often from a hacked or look-alike email address, so your closing money goes to them. Before you wire anything, call the title company at a number you already know, not one in the email, and confirm the instructions. Changed instructions sent by email are a warning sign.

Zoning is the local rule set that controls how land can be used: what can be built, how close to the lot line, how tall, and whether a business or a rental is allowed. It is set by the city, township or village. If you plan an addition, a home business or a rental unit, check the zoning before you buy rather than after.