Ability-to-repay
A requirement applying to many consumer mortgages for a reasonable, good-faith determination that the borrower can repay. Business-purpose and other exempt transactions require separate analysis.
Shared across every program
Mortgage and financing dictionary
Definitions for the terms used throughout the loan program library. Each linked term opens this same explanation, wherever you encounter it.
96 terms
Adjustable rate mortgage
A mortgage whose interest rate can change under the loan agreement, often after an initial fixed period. Later changes can affect the payment.
After-repair value (ARV)
An estimate of property value after the specified renovation is completed. It is a projection, not guaranteed resale proceeds.
Amortization
The repayment schedule through which principal is reduced over time. A loan can use a long amortization schedule but mature sooner, leaving a balloon balance.
Appraisal
A professional assessment of a property’s value used by the lender. It does not replace a home inspection or guarantee the condition of the home.
Area median income (AMI)
A local income benchmark used in certain housing programs. Each program defines which income and published limits apply.
As-completed appraisal
A valuation based on proposed improvements being completed according to the approved plans and specifications.
Balloon payment
A remaining balance due at maturity after earlier payments have not fully repaid the loan. A long amortization schedule does not necessarily mean the loan has an equally long term.
Capitalization rate
Property net operating income divided by value. Income valuation can divide supported NOI by an applicable market cap rate; the selected rate and income both affect indicated value.
Cash-out refinance
A refinance that provides proceeds beyond amounts permitted under the applicable limited-cash-out or rate-and-term rules. Different leverage, ownership-history, and pricing requirements can apply.
Certificate of Eligibility (COE)
A document establishing VA home loan benefit eligibility. It does not replace lender approval of income, credit, property, and loan terms.
Certified Development Company (CDC)
An SBA-certified nonprofit development organization participating in the SBA 504 program. It works with lenders and eligible businesses on the CDC financing component.
Closing costs
Expenses for completing the mortgage transaction, separate from the down payment. These may include lender, appraisal, title, and recording charges. Cash needed at closing can also include prepaid taxes and insurance.
Collateral
An asset pledged to secure a debt. For a home mortgage, the property secures repayment. In an MBS structure, the underlying mortgage loans back the security.
Combined loan-to-value (CLTV)
The combined balances of loans secured by a property divided by the accepted value. HELOC exposure can be treated differently under certain program calculations.
Commercial mortgage-backed securities (CMBS)
Investments backed by pools of commercial mortgage loans. Servicing and prepayment rules can differ from a bank-held commercial loan.
Conforming loan
A mortgage that meets the applicable Fannie Mae or Freddie Mac eligibility requirements and the conforming loan limit. The requirements cover more than loan size, including borrower documentation and property eligibility.
Conforming loan limit
The maximum loan amount eligible for purchase under Fannie Mae and Freddie Mac conforming programs. It varies by year, location, and unit count. Other eligibility requirements also apply.
Contingency reserve
Funds budgeted for eligible unexpected project expenses. Availability and release depend on the construction or renovation agreement.
Cost to complete
The remaining budget needed to finish a project, including applicable carrying and other required expenses. A lender may require additional equity when remaining funds are insufficient.
Credit event
An event such as bankruptcy or foreclosure that can affect eligibility, waiting periods, and documentation. Program treatment depends on the type, dates, and circumstances.
Cross-collateralization
An arrangement in which more than one asset secures obligations under the financing. Release terms determine the paydown needed to free a property when it is sold or refinanced.
Debenture
A debt instrument. In SBA 504 financing, the SBA-backed debenture supports the CDC portion of an eligible fixed-asset project.
Debt service
Required payments on debt over a stated period. A commercial coverage calculation generally compares annual property income with annual debt payments.
Debt service coverage ratio (DSCR)
A measure of income relative to required payments. Commercial programs typically use net operating income divided by debt service; many one- to four-unit rental programs use qualifying rent divided by housing expense. Confirm which formula applies.
Debt yield
Annual property net operating income divided by loan amount. It measures income support relative to the debt without depending on the mortgage interest rate.
Debt-to-income ratio (DTI)
Qualifying monthly debt payments, including the proposed housing payment, divided by gross monthly income. It helps the lender assess repayment capacity but does not include every household expense.
Defeasance
A contractual process replacing real estate collateral with qualifying securities that support required loan payments. It can involve legal, servicing, and transaction costs.
Deferred-payment loan
A loan whose repayment is postponed until a defined date or event. No monthly payment does not necessarily mean no interest or no balance due.
Discount points
Upfront charges paid to obtain a lower interest rate. One point equals 1% of the loan amount; the rate reduction available for that payment varies.
Draw
An advance of loan funds. Construction draws usually require evidence of approved progress or costs; HELOC draws access available credit under the agreement.
Exit strategy
The planned source of loan repayment, such as a property sale or qualifying permanent refinance. A projected exit is not a funding commitment.
Expected interest rate
In HECM calculations, a rate used to determine initial borrowing capacity. It can differ from the actual rate that accrues interest on the loan balance.
Expense factor
A percentage or documented method used to account for business expenses when a lender calculates income from revenue or deposits.
Fannie Mae
A government-sponsored company that buys eligible mortgages from lenders and supports mortgage financing. Its loan standards help determine how conforming mortgage applications are evaluated. It does not ordinarily make home loans directly to consumers.
Federal Housing Finance Agency (FHFA)
The federal regulator of Fannie Mae and Freddie Mac. Among its responsibilities, it establishes the annual conforming loan limits under federal law.
Fixed rate mortgage
A mortgage whose interest rate stays the same for the loan term. On a standard fully amortizing loan, scheduled principal and interest stay steady. Taxes and insurance can still change.
Forgivable loan
A loan whose repayment obligation can be reduced or eliminated after specified conditions are met. Selling, moving, or refinancing early may affect forgiveness.
Freddie Mac
A government-sponsored company that buys eligible mortgages from lenders and supports the flow of funding for home loans. It has its own mortgage guidelines, which overlap with but are not identical to Fannie Mae’s.
Ginnie Mae
A government corporation that guarantees payments on eligible securities issued by approved private issuers and backed by government-insured or guaranteed mortgages. It does not make or purchase mortgage loans.
Global cash flow
An analysis combining relevant business, owner, and related-entity income and obligations to assess overall repayment capacity.
Government-sponsored enterprise (GSE)
A company created by Congress to support a public purpose while operating as a corporate enterprise. Fannie Mae and Freddie Mac support mortgage financing. They are distinct from government agencies such as FHA or VA.
Guaranteed maximum price (GMP)
A construction contract structure setting a stated maximum price subject to its exclusions, allowances, and change-order provisions. It does not eliminate every cost-overrun risk.
HECM
Home Equity Conversion Mortgage: an FHA-insured reverse mortgage for eligible older homeowners. Ongoing occupancy, property-charge, and maintenance requirements apply.
High-balance conforming loan
A conventional mortgage above the baseline limit but within the approved higher limit for the property’s high-cost area and unit count. It must also meet applicable agency guidelines. Freddie Mac uses the term super conforming.
Interest reserve
Funds budgeted or held within a financing structure to pay approved interest during a defined period. A financed reserve uses loan capacity and can be exhausted by delays.
Interest-only period
A period when required scheduled payments cover interest without reducing principal. Payments or the remaining balance can increase afterward under the loan terms.
IRRRL
The VA Interest Rate Reduction Refinance Loan, used to refinance an eligible existing VA loan subject to applicable benefit, seasoning, and other requirements.
ITIN
An Individual Taxpayer Identification Number issued by the IRS for federal tax administration. It does not establish immigration status or work authorization.
Lease rollover
The timing of lease expirations and potential tenant changes. Concentrated expirations can create vacancy and re-leasing risk near loan maturity.
Lender overlays
Additional lender requirements beyond the underlying agency or investor minimum framework. They can affect eligibility or documentation.
Life-expectancy set-aside (LESA)
A HECM reserve for specified future property charges based on the program’s financial assessment and calculation. It can reduce funds available for other uses.
Liquidity
The ability to access funds to meet obligations. Cash is highly liquid; equity in real estate generally requires a sale or financing to access.
Loan covenants
Contractual obligations such as reporting, coverage ratios, use restrictions, or reserve requirements. Breaches can trigger specified lender remedies.
Loan guarantee
A third party’s promise to cover specified obligations or losses under defined terms. SBA and VA support protects the lender within program rules; it does not erase the borrower’s debt.
Loan-level price adjustment (LLPA)
An agency pricing adjustment associated with specified loan risk features. The final lender offer can reflect it through rate, upfront cost, or both.
Loan-to-cost
Loan amount divided by eligible project cost. A construction lender may apply this test as well as a loan-to-value test.
Loan-to-value (LTV)
The loan amount divided by the accepted property value, expressed as a percentage. For purchases, program rules often use the lower of price and appraised value. Different property and transaction types have different limits.
Mandatory obligations
Amounts required to complete a HECM transaction under program rules, including specified payoffs, costs, and other required items. They affect net proceeds and first-year access.
Margin
The amount added to a benchmark or index to determine a variable interest rate, subject to applicable floors, caps, and contract terms.
Mortgage constant
Annual scheduled principal-and-interest debt service divided by the original loan amount. At a given constant, supported debt service can be converted to an indicated loan amount.
Mortgage insurance premium (MIP)
An insurance charge under an FHA mortgage program. Forward FHA mortgages and HECM reverse mortgages have different premium structures and rules.
Mortgage servicer
The company that administers your loan, including collecting payments and managing any escrow account. It may be different from the lender that made the loan or the owner of the loan.
Mortgage-backed security (MBS)
An investment backed by mortgage loans. Payments to investors are supported by collections on the underlying mortgages and, for agency MBS, the applicable issuer guarantee.
Net operating income (NOI)
Property income after operating expenses, before debt service and income taxes. Underwriting can normalize vacancy, expenses, and reserves, so the lender’s figure may differ from the seller’s.
Non-QM
A mortgage outside the federal Qualified Mortgage criteria. It can use alternative income methods, but the applicable ability-to-repay and documentation rules still matter.
Nonrecourse
A structure limiting recovery to specified collateral, subject to contract terms and exceptions. Guarantees, misconduct carve-outs, and program-specific protections must still be reviewed.
Personal guarantee
A promise by an individual to answer for specified loan obligations. Entity ownership does not itself eliminate a required guarantee.
PITIA
Principal, interest, taxes, insurance, and association dues. Many residential rental DSCR programs compare accepted rent with this housing expense.
Prepayment penalty
A charge for repaying a loan early under specified contract terms. Whether permitted or applicable depends on the loan and governing law.
Prepayment provisions
Contract terms governing early repayment, including whether a charge, yield maintenance, or another process applies. Rules vary by program and governing law.
Pricing tier
A range of loan characteristics associated with particular investor pricing or eligibility. Coverage, leverage, credit, and balance thresholds can move a loan between tiers.
Prime rate
A benchmark commonly used for variable-rate business and home-equity lending. A loan may charge Prime plus a contractually defined margin.
Principal limit
The borrowing capacity calculated under a reverse mortgage program before required payoffs, set-asides, and costs determine the funds actually available.
Principal-limit factor
A reverse-mortgage calculation factor used with eligible property value to determine initial principal-limit capacity. Factors depend on the program, relevant ages, and rates.
Private mortgage insurance (PMI)
Insurance required on some conventional loans, commonly when the down payment is less than 20%. It protects the lender, and its cost is paid by the borrower. Cancellation and termination rules apply.
Qualified Mortgage (QM)
A mortgage meeting specified federal product, underwriting, and cost criteria within the applicable framework. It is not the same classification as conforming or FHA.
Rate lock
An agreement to hold specified mortgage pricing for a defined period, subject to stated conditions. An expired lock or changed loan details can affect pricing.
Recourse
A lender’s contractual ability to seek repayment beyond the specified collateral, such as from a borrower or guarantor. The documents determine the extent.
Rent roll
A schedule of units or tenants, rents, lease dates, and related occupancy information. Lenders compare it with leases and actual collections.
Reserves
Eligible assets remaining after closing that demonstrate financial capacity. Requirements may be expressed as a number of months of housing payments.
Residual income
For VA underwriting, the income remaining after specified debts and other obligations. The requirements take account of household size and location.
Reverse mortgage counseling
Independent education about reverse mortgage obligations, costs, alternatives, and household implications. HECM counseling must meet HUD requirements.
Seasoning
A required period of ownership, payment history, asset history, or time after an event before a transaction or funding source is eligible. The meaning depends on the program.
Secondary mortgage market
The market in which existing mortgages and mortgage-related securities are bought and sold. It allows lenders to recover funds and finance additional loans.
Securitization
The process of pooling financial assets, such as mortgages, and issuing securities backed by those assets and their payment streams.
Set-aside
Funds reserved under a loan program for specified future obligations, such as property charges in a reverse mortgage. They can reduce immediately available proceeds.
Shared appreciation
An arrangement under which an assistance provider or lender receives a contractually defined share of a future gain in property value, in addition to any other required repayment.
SOFR
The Secured Overnight Financing Rate, a benchmark based on overnight Treasury-secured financing transactions. Some commercial loans use a SOFR-based index plus a spread.
Stabilization
The stage at which a property reaches an accepted level of occupancy and sustainable operations under a lender’s requirements.
Subordinate lien
A lien with a lower priority than another lien on the property. Subordination terms matter when adding or refinancing debt.
Subordination
An agreement establishing one lien’s lower priority relative to another. Refinancing a first mortgage may require a junior lender’s approval to retain the intended priority.
Underwriting
The lender’s review of your finances, property, and proposed loan to determine whether the application meets program requirements.
VA entitlement
The amount of VA guaranty benefit available to an eligible borrower. Prior or existing VA financing can affect remaining entitlement and a future down payment requirement.
VA funding fee
A one-time charge on many VA loans supporting the program. The amount and any exemption depend on the transaction and borrower eligibility.
Yield maintenance
A prepayment charge calculated to compensate the lender or investor for lost expected investment return under a defined contractual formula.