Loan Glossary

The process of paying off a loan through regular payments over time. Each payment covers both interest and principal, with the interest portion decreasing and the principal portion increasing as the balance declines.

The true yearly cost of borrowing, expressed as a percentage. APR includes the interest rate plus fees (origination, points, mortgage insurance), making it more accurate than the stated interest rate for comparing loan offers.

A short-term loan used to bridge a gap between two transactions — typically used when a buyer needs to purchase a new property before selling the current one.

The complete history of all previous ownership transfers and liens on a property. A clear chain of title is required before a lender will approve a mortgage.

The final step in a real estate transaction where all documents are signed, funds are transferred, and ownership of the property changes hands.

Fees and expenses paid at or before closing, typically 2%–5% of the loan amount. Includes origination fees, appraisal, title insurance, escrow deposits, attorney fees, and prepaid interest.

An additional person who applies for and signs a loan alongside the primary borrower. Their income and credit are considered, and they share equal responsibility for repaying the loan.

An asset pledged to secure a loan. If the borrower defaults, the lender can seize the collateral. For mortgages, the property itself serves as collateral.

A numerical representation of a borrower's creditworthiness, ranging from 300 to 850. Lenders use credit scores to evaluate loan eligibility, determine interest rates, and set loan terms.

The percentage of a borrower's gross monthly income that goes toward paying debts. Lenders use DTI to assess repayment ability. Most conventional loans require a DTI under 43%–50%.

Failure to meet the legal obligations of a loan, most commonly by missing payments. Default can trigger foreclosure on real estate loans or repossession on other secured loans.

A deposit made by a buyer to show serious intent when making an offer on a property. Typically 1%–3% of the purchase price, it is applied toward the down payment at closing.

The difference between a property's market value and the outstanding loan balance. Equity grows as the borrower makes payments and/or the property appreciates in value.

A neutral third party that holds funds or documents during a real estate transaction until all conditions are met. Lenders also use escrow accounts to collect and pay property taxes and insurance on behalf of borrowers.

A temporary agreement between a borrower and lender to pause or reduce loan payments during a financial hardship. Interest typically continues to accrue during forbearance.

The percentage charged by a lender for the use of money, expressed as an annual rate. The stated interest rate does not include fees — use APR for a more complete cost comparison.

A legal claim against a property used as collateral for a debt. Mortgages, home equity loans, and unpaid taxes all create liens. All liens must typically be resolved before a property can be sold.

A fee charged by the lender for processing and underwriting the loan, typically 0.5%–1% of the loan amount. It may be listed as "points" (1 point = 1% of loan amount).

The ratio of the loan amount to the property's appraised value, expressed as a percentage. Higher LTV means more risk for the lender. LTV over 80% typically requires private mortgage insurance (PMI).

The date on which the final loan payment is due and the loan balance must be paid in full. For a 30-year mortgage taken out today, the maturity date is 30 years from now.

The process of creating a new loan, from the initial application through underwriting, approval, and closing. Loan origination fees compensate lenders for this process.

A fee charged by some lenders if the borrower pays off the loan early (fully or through large extra payments). More common on commercial loans and hard money loans.

The original amount borrowed on a loan, or the remaining balance owed. Principal decreases as the borrower makes payments. Interest is calculated on the outstanding principal balance.

An individual or non-bank entity that provides loans outside of traditional banking channels. Private lenders typically charge higher rates but can move faster and offer more flexible terms.

A legal document signed by the borrower promising to repay the loan under specific terms including the interest rate, repayment schedule, and consequences of default.

The real estate being purchased or refinanced — the property that serves as collateral for the loan being applied for.

Legal ownership of a property. When you receive a deed at closing, you receive title to the property. Lenders require title insurance to protect against any claims or defects in the title.

An examination of public records to confirm the seller's legal right to sell the property and identify any outstanding liens, easements, or encumbrances on the title.

The process by which a lender evaluates a borrower's application, credit, income, assets, and the property to determine whether to approve the loan and on what terms.

A mortgage or business loan requiring no down payment. VA loans and USDA loans offer zero-down options for eligible borrowers. Some SBA 504 loans require only 10% down.