Mortgage Glossary - Zing! Blog by Quicken Loans

Not sure what FHA or conventional home loans are? Wondering if there’s a difference between prequalification and preapproval? If you’re new to home buying, the terminology can be confusing. Our mortgage glossary will help you understand technical mortgage terms used throughout our website and in the industry. So, when your lender mentions PITI and escrow, you’ll have no problem understanding what they mean.

Use the menu below to navigate our glossary of mortgage terms alphabetically.
A-credit is the best credit grade you can have. Generally, a FICO Score of 720 or above will help you get the lowest possible interest rate.

A mortgage acceleration clause, typically included in a mortgage note, gives your lender the right to immediately demand the full outstanding balance (the principal balance and any accrued interest) of the loan if certain conditions are met. For instance, if you miss a mortgage payment, your lender may be able to accelerate your loan and demand repayment.
Accrued interest is interest that you have accumulated on a loan but not yet paid to your lender. Mortgage interest accrues daily or weekly depending on your loan type, and is based on your loan’s principal balance and mortgage rate.
An adjustable-rate mortgage (ARM), also known as a variable-rate mortgage, is a loan with an interest rate that changes periodically based on market fluctuations. After an initial fixed-rate period (typically 5, 7 or 10 years), your interest rate increases or decreases once per year. You’re protected from drastic payment changes by an interest rate cap – a safeguard that determines the maximum amount your rate can change.
An adjustment interval, also known as an adjustment period, is the amount of time between interest rate changes on an adjustable-rate mortgage. After an initial fixed–rate period, your interest rate adjusts up or down once per interval for the remainder of your loan.
See Adjustment Interval.
An aggregate adjustment is a calculation your lender uses to prevent collecting more money for your escrow account than is allowed under the Real Estate Settlement Procedures Act (RESPA). Under RESPA, lenders can’t keep more than one-sixth of your annual property tax and insurance payment amount as a cushion in your escrow account at any one time. Prior to closing, your lender will calculate your aggregate adjustment to determine whether they need to credit any money to you to prevent your escrow account from holding more funds than are allowed.
See Purchase Agreement.
Amortization is the process of repaying a loan over a fixed period of time. Each repayment installment consists of both principal and interest. In most cases, at the beginning of your loan term, a greater amount of your monthly payment is applied to interest than to your principal balance. Toward the end of your loan term, more of your money gets applied directly to your principal balance than to interest.
The amount financed is equal to your loan amount minus any prepaid finance charges. This figure is based on the assumption that you’ll keep the loan to maturity and make only the minimum required monthly payments. The amount financed is used to calculate your annual percentage rate. How quickly you pay off the amount financed depends on whether you make more than minimum payments.
The annual percentage rate (APR) expresses the cost of the loan on a yearly basis and is denoted as a percentage. While the interest rate tells you how much interest you’ll pay based on your principal loan amount, the APR gives you more information about the actual cost of the loan, reflecting interest charges as well as points and other fees.
A property appraisal is an independent, professional opinion of value that helps establish a property’s market value – in other words, it helps determine the sale price it would likely bring if offered in an open and competitive real estate market. Lenders usually require an appraisal to ensure that the mortgage loan amount is not greater than the value of the property.
Appreciation is the increase in the value of a property over time. Changes in the housing market or home improvements can cause the property’s value to increase.
Assignment is the transfer of ownership, rights or interests in property from one person to another. After your loan closes, your loan may be sold or assigned to another lender. When this happens, your financial obligation is to repay your new lender rather than the lender you originated your loan with.
Assumption occurs when the buyer of a property agrees to become responsible for repaying an existing loan on the property. To do this, the buyer must pay the seller for any equity in the home. Then, the buyer assumes the loan with the existing interest rate and monthly payment.
An automated valuation model (AVM) is a service that provides lenders with a computer-generated property value. AVM property values are based on comparable property sales in your area, title records and other market factors. However, AVM property values aren’t able to consider the condition of the property like a licensed appraiser would.

B

Backup offers are accepted by a seller after the seller and a potential buyer are already under contract. A seller may accept backup offers to prevent having to relist the home if they think the current offer may fall through. If the first offer collapses, the backup offer will be first in line.
The balance is the full dollar amount of a loan that is left to be paid. It is equal to the loan amount minus the sum of all prior payments to the principal.
A balloon mortgage is a short-term loan that includes fixed-rate monthly payments for a set number of years followed by a large “balloon” payment that covers the remainder of the principal. Typically, the balloon payment is due at the end of 5, 7 or 10 years. Borrowers with balloon mortgages may be able to refinance the loan when the balloon payment is due, but the right to refinance is not guaranteed. Rocket Mortgage^Ⓡ does not offer balloon mortgages.
See Cashier’s Check.
Bankruptcy is a federal court proceeding to relieve a person or a business from debts. When a person declares bankruptcy, their assets are usually turned over to a trustee and used to pay off outstanding bills. A bankruptcy will stay on your credit report for 7 to 10 years.
A bequest is personal property or money that is given as a gift through a will.
When you make biweekly mortgage payments, you pay half of your monthly mortgage payment every other week. This adds up to 26 half payments, or 13 full payments, each year. Since only 12 payments are required to be made per year, the 13th payment is applied directly to the principal amount due. This reduces your balance faster than making regular payments does.
A blanket mortgage covers more than one plot of land owned by the same borrower. Rather than mortgaging each lot separately, a blanket mortgage can be used to reduce costs and save time.

You can use a blanket mortgage to access the equity in your current home to pay for the down payment and closing costs on your new home. This enables you to start building your new home before your old house sells.
A borrower, also known as a mortgagor, is an individual who applies for and receives funds in the form of a loan. The borrower is obligated to repay the loan in full under the terms of the loan.
A bridge loan is a temporary, short–term loan that gives you funds before you’re able to secure permanent financing. You can use a bridge loan to pay off an existing mortgage or fund the closing costs of a new mortgage.
A broker is a person who is licensed to handle property transactions and who acts as a go-between for buyers and sellers.
A buydown occurs when you pay an additional charge (known as a mortgage point) in exchange for a lower interest rate on your loan. You may want to buy down your mortgage rate if you expect your earnings to go up but want a lower payment right now.
In a buyer’s market, supply is greater than demand, putting housing market conditions in favor of the buyers. With more sellers than buyers in the market, sellers may be forced to make a substantial price reduction to attract buyers.
A callable debt is a provision in a loan that allows the mortgage lender to require you to repay the loan in full before the end of the loan term. This may happen when the terms of the loan are breached, or it may happen at the discretion of the lender.
A cash-out mortgage refinance loan is a new loan that is larger than the remaining balance on your current mortgage. When you refinance with a cash-out mortgage, you get cash back from the equity in your home, which can be used for anything from home improvements to college tuition.

For example, if your home is worth $250,000 and you owe $150,000 on the mortgage, then you have $100,000 of equity in your home. If you need $50,000 for home repairs, you could refinance your mortgage so that you owe $200,000. Your lender would then give you $50,000 at closing.
A cashier’s check, also known as a bank check, has a guaranteed payment because the funds were paid in advance.
A ceiling is the maximum allowable interest rate on an adjustable–rate mortgage.
A certificate of completion is required when you use a loan for home renovation or for the construction of a new home. When a construction project ends, a qualified authority, such as an architect or appraiser, should sign a certificate of completion to show that the project meets the agreed-upon building specifications.
A certificate of eligibility is a document that verifies a veteran’s eligibility for a VA loan. This document, issued by the U.S. Department of Veterans Affairs, can be obtained from your local VA office if you submit Form DD-214 (Separation Paper) and VA Form 1880 (Request for Certificate of Eligibility).
A certificate of title is a document that shows who a property belongs to. This certificate should be provided by a qualified source, such as a title company.
A Certificate of Veteran Status is an FHA form filled out by the VA to establish your eligibility for a VA loan. The form can be obtained through your local VA office by submitting form DD-214 (Separation Paper) with form 26-8261a (Request for Certificate of Veteran Status).
The Certification and Authorization form is a document that you’re required to sign to certify that all the information you provided during the application process is true and complete. The information on the form refers to the purpose of the loan, the amount and source of the down payment, employment and income information, and assets and liabilities information.

In addition to certifying that you’ve made no misrepresentations, you’re also authorizing the release of credit and employment information. As part of the application and approval process, your lender may verify the information contained in your application and other documents before the loan is closed. In signing the authorization form, you also give your lender permission to sell your loan to another company.
The chain of title is the list of previous and current owners of a property in chronological order, from the original owner to the present owner.
The closing, also known as the settlement, is the conclusion of your real estate transaction. It includes the delivery of your security instrument, the signing of your legal documents and the disbursement of the funds necessary for the sale of your home or your refinance transaction.
Mortgage closing costs, also known as settlement costs, are fees charged for services that are required to process and close your loan application. Examples of mortgage closing costs include title fees, recording fees, appraisal fees, credit report fees, pest inspection fees, attorney’s fees, taxes and surveying fees.
A Closing Disclosure is a form that outlines the key details of your loan when you receive an official offer for a mortgage. This standard form, which the Consumer Financial Protection Bureau (CFPB) requires lenders to provide to consumers three business days before closing, allows you to compare your final loan offer to the loan estimate that was provided to you at the time of application.
A co-borrower or co-applicant is a person who, along with you, accepts responsibility for repaying a loan.
Collateral is what’s pledged as security for a debt. When you get a mortgage, your home is considered collateral, meaning you risk losing the property if you don’t repay your debt according to the terms of the mortgage.
Collection accounts are unpaid debts that are forwarded to a company’s collections department or to an outside collection agency. Collection accounts appear on your credit report to inform lenders of your ability to pay back debt. When applying for a mortgage, unpaid collection accounts may prevent you from getting a loan or decrease the amount of money your lender is willing to lend.
The combined loan-to-value (LTV) ratio is the sum of the balances of multiple loans on a property divided by the property’s value. This ratio is often described as a percentage.
Commission is money paid to a real estate agent or broker for negotiating a real estate or loan transaction.
A commitment is a promise that a lender will lend to you, along with a statement of the terms and conditions of the loan.
A comparable property, also known simply as a “comparable,” is used by appraisers to determine the fair market value of a home. Comparables are recently sold properties that have similar sizes, locations and amenities as the property being appraised.
A comparative market analysis is an informal estimate of market value that a real estate agent or broker calculates based on sales of comparable properties within the neighborhood. A comparative market analysis is not quite as accurate as an appraisal but can be obtained for free and is a good estimate of your home’s value.
Compound interest is calculated on the initial principal and the accumulated interest of prior months. You’ll often experience compounding interest during negative amortization, which is when the principal amount of your loan increases because your payments are lower than the full amount of interest owed each month.
A condominium is a real estate property in which you share equity or use of the common areas. The units may be attached or detached. The term “condominium” refers to the type of ownership in the property, not the type of construction.
A conforming loan is a mortgage loan that meets all the requirements to be eligible for purchase by investors such as Fannie Mae and Freddie Mac. Conforming loans carry interest rates that are as much as 0.5% lower than loans that fail to meet these requirements, called nonconforming loans.
New home construction loans are short-term financing options that cover the cost of erecting a new house during the actual building process. With a new home construction loan, you can usually draw money from the loan five to 10 times in order to coincide with stages of construction, such as pouring the foundation, framing and installation of heating and cooling systems, as well as the finishing work, like painting and installing carpeting.

In most cases, construction loans are converted to or replaced by a standard mortgage once construction is complete.
A consumer reporting agency is a company that gathers, files and sells information to creditors so they can decide whether to extend credit to you.
A contingency is a condition that must be satisfied before a contract is legally binding. For example, home buyers often include a contingency stating that the home must receive a satisfactory home inspection report.
A contract of sale is an agreement between a buyer and a seller on the purchase price, terms and conditions of a sale.
A conventional loan is any type of mortgage that is not secured by a government-sponsored entity, such as the Federal Housing Administration or the Veterans Administration.
A conversion clause is a provision in some adjustable–rate mortgages that allows you to change an ARM to a fixed-rate loan, usually after the first adjustment period. The new fixed rate will be set at current rates, and there may be a charge for the conversion feature.
A convertible adjustable-rate mortgage is a type of loan that can be converted to a fixed-rate mortgage. You’re usually required to pay fees to convert the loan, and the conversion can only happen during a specific period. Often, the fixed rate you get with a convertible ARM is slightly higher than standard fixed rates. Rocket Mortgage^Ⓡ does not offer convertible ARMs.
A conveyance is a written contract that’s used to transfer the legal title of a property between the seller and the buyer.
A cooperative, also known as a co-op, is a multiunit housing complex that allows multiple owners to own shares in the cooperative corporation that owns the property. Each resident in the co-op has the right to occupy a specific unit or apartment.
A cost of funds index (COFI) is an index that’s used to determine the cost of adjustable-rate mortgages. When economic conditions change, lenders use a COFI to adjust their interest rates.
A credit bureau is a company that collects and distributes credit history information. Companies that extend credit to individuals provide the credit bureau with factual information on how their clients pay their bills, the number of credit accounts they possess, the balance of those accounts, payment habits and the length and place of their employment. Credit bureaus regularly assemble this information, along with public record information from courthouses around the country, into a file on each consumer. The three main credit bureaus are Experian^Ⓡ, Equifax™ and TransUnion^Ⓡ.
Your credit history is a record of your past financial behavior. Lenders use credit history to determine whether you’re likely to make loan payments in the future. Having a short credit history can be damaging because lenders need proof that you’re capable of responsibly paying back a loan.
Your credit report is a detailed summary of your borrowing history. It shows previous and current credit accounts, along with your payment history. When you apply for a loan, your lender uses your credit report to determine whether to take a risk and lend you money.
A credit score is a statistical method of assessing your creditworthiness. Credit scores are based on several factors, including your credit card history, the amount of outstanding debt you have and the type(s) of credit you use. Negative information, such as bankruptcies, late payments, collection accounts and judgments, is also used to calculate your credit score.
Debt consolidation is the process of rolling all your debt into one loan. If you have other bills, such as credit card debts or car loans, that carry a higher interest rate than your mortgage, you may want to consider a debt consolidation loan. This allows you to refinance your existing mortgage and high-interest debt into one loan with one monthly payment.
Your debt-to-income ratio (DTI) is your total monthly debt payments (including your housing payment, car payment, credit card payments, etc.) divided by your monthly gross income, expressed as a percentage.

The FHA usually requires that your monthly mortgage payment be no more than 29% of your monthly gross income (meaning your income before taxes), and that your DTI ratio not exceed 41% of your monthly gross income.
A deed is a legal document used to transfer property from one owner to another. It contains a description of the property and is signed, witnessed and delivered to you as the buyer at closing.
A deed of trust is a legal document that gives the title of a property to a third party. The third party holds the title until the owner of the property has repaid the debt in full.
Default is the failure to make payments on your home loan.
A deferred interest loan, also known as a negative amortization loan, is a loan that lets you pay less than the entire interest owed for that month. The unpaid interest is then added to your loan amount to be paid off later, increasing the overall loan amount. Rocket Mortgage^Ⓡ does not offer deferred interest loans.
Delinquency is the failure to make payments as laid out in a loan agreement.
A discount loan is a mortgage where the buyer has paid extra cash at closing to receive a reduced interest rate. You can get a discount loan by purchasing discount points. Your discount loan may help you save money on interest over the life of the loan, depending on how long you plan to stay in your home.
Discount points, also called mortgage points, are an upfront fee paid to the lender at the time that you get your loan. Each point equals 1% of your total loan amount. In general, the more points you pay, the lower your interest rate will be. However, the more points you pay, the more cash you need upfront since points are paid at closing.
The down payment is the amount of your home’s purchase price that you pay in cash upfront to get your loan. A down payment that’s at least 20% of your home’s value will generally prevent you from having to pay private mortgage insurance. However, many mortgage programs will allow you to get a loan with a much smaller down payment.
A draw period is the amount of time you can withdraw funds from a credit account through a home equity line of credit. For instance, a 10-year draw period allows you to withdraw money for a period of 10 years. After the draw period ends, you are responsible for repaying the loan.
A due-on-sale clause is a provision in a mortgage or deed of trust allowing the lender to demand immediate payment of the loan balance when the property is sold.
A duplex is a house that’s divided into two units, both occupied by an owner.
An e-signature is an electronic, legally binding alternative to signing a document in person. By giving you the ability to quickly review and sign documents online, e-signatures can expedite the loan application process.
Earnest money is a deposit you make toward your down payment as evidence of good faith when you sign a purchase agreement. The earnest money becomes part of your down payment if the offer is accepted. If the offer is rejected, the earnest money is given back. Earnest money is forfeited if you pull out of the deal.
Encroachment is the act of erecting a structure or a portion of a structure, such as a building, wall or fence, that extends beyond or hangs over the owner’s property line. Encroachment can sometimes occur after a surveying error. A mortgage survey is supposed to capture a bird’s-eye view of your property, which shows the boundary lines of the lot. It should also detail any encroachment from the neighbors and vice versa.
The Equal Credit Opportunity Act (ECOA) is a federal law requiring companies that extend credit to make credit equally available without discrimination based on race, color, religion, national origin, age, sex, marital status or receipt of income from public assistance programs.

ECOA ensures that everyone has an equal chance to obtain credit and own a home. However, this does not mean that all consumers who apply for a loan will be approved for one. Your financial background, which includes income, expenses, debt and credit history, is a fair measurement of creditworthiness.
Equifax^Ⓡ is one of the three largest credit bureaus in the United States.
Equity is the difference between what your home is worth and what you owe on the home. With a new mortgage loan, the down payment represents the equity in your home.
An escrow account is a special account that your lender uses to hold your monthly payments toward property taxes and insurance. Instead of paying for your tax and insurance payments in one lump sum, you can pay for them as part of your monthly mortgage payment. Your lender collects these payments in your escrow account, and when your tax and insurance bills become due, your lender makes the payment for you.
An escrow agent is a neutral third party who accepts money into an escrow account and ensures that the money is dispersed according to the contract signed during the home purchasing process. The agent serves the buyer and the seller to make sure that the terms of sale are met.
Experian™ is one of the three largest credit bureaus in the United States.
The Fair Credit Reporting Act (FCRA) is a federal law that protects you against unfair, inaccurate credit reporting and gives you the right to examine your own credit history. The FCRA bars credit bureaus from reporting negative information that is older than 7 years, with the exception of a bankruptcy, which may remain on your report for 10 years. It also requires credit bureaus to investigate any alleged errors on your report and remove inaccuracies within 30 days.
The Fair Isaac Corporation (FICO^Ⓡ) is the analytics software company that created the FICO^Ⓡ credit scoring model, which is widely used by mortgage lenders to assess risk.
Fair market value is the price that your property would sell for in an open market. An appraisal can help determine the fair market value of your home.
Fannie Mae is a government-sponsored corporation that buys mortgages from lenders and sells them to investors on the open market. This helps replenish lenders’ funds so that they have more money available to lend for home purchases.
The Federal Deposit Insurance Corporation (FDIC) is an independent agency of the federal government that was created to maintain stability and public confidence in the United States banking system. The FDIC guarantees personal checking and savings accounts at FDIC member banks.
The Federal Housing Administration (FHA) is a federal agency that insures residential mortgage loans made by private lenders and sets standards for underwriting mortgage loans. The FHA, which is part of the U.S. Department of Housing and Urban Development, doesn’t lend money or plan or construct housing.
The Federal Reserve Board, also called the “Fed,” oversees Federal Reserve banks, establishes monetary policies and monitors the economic health of the country. Each member of this seven-member board is appointed by the United States president and serves a 14-year term.
Fee simple means absolute ownership of real property. The term shows that the property is owned without any limitations or conditions.
FHA loans are loans insured by the Federal Housing Administration. FHA loans are designed to make housing more affordable, particularly for first-time home buyers. These loans offer low down payments, low closing costs and easy credit qualifications.
A FICO^Ⓡ Score is a type of credit score created by the Fair Isaac Corporation. FICO^Ⓡ is the most common credit-scoring model used by lenders. According to this model, the higher your FICO^Ⓡ Score, the less likely you are to default on your loan. Your FICO^Ⓡ Score is determined by five factors using the information in your credit reports: your payment history, how much you owe on your debts, the length of your credit history, how much new credit you have and the types of credit you currently have in use.
A finance charge includes the total of all the interest you’ll pay over the entire life of your loan (assuming you keep the loan to term), plus all prepaid loan charges. If you prepay any principal during your loan, your total finance charge is reduced. Prepaid loan charges include origination fees, discount points, mortgage insurance and other applicable charges.
A financial statement is a summary of your financial situation. The statement includes your assets and liabilities on a given date.
A first mortgage is a loan that is in first lien position and takes priority over all other liens. In the case of a foreclosure, the first mortgage loan will be repaid before any other mortgages on the property.
A fixed-rate mortgage is a loan with an interest rate that doesn’t change over the life of the loan. With a fixed-rate mortgage, your principal and interest payment will never change.
The fixed-rate period is the initial time when your interest rate will not adjust. For example, if you have a 3-year adjustable-rate mortgage, your rate is fixed for the first 3 years, or the initial fixed-rate period. After that, your rate becomes variable. On fixed-rate loans, the fixed-rate period is the life of the loan (30-year fixed, for example).
A flexible payment is a feature of an interest-only home loan that allows you to pay only the interest on your loan each month. If your income fluctuates, flexible payments can help you avoid falling behind with your mortgage payments.
Floating a loan means proceeding with the mortgage process without locking your interest rate. When you do this, your mortgage rate will continue to change, or float, due to market conditions until it’s time to schedule your closing. To avoid floating your loan, you can lock your rate, which protects it from going up until your rate lock expires. On the other hand, if rates have been dropping, it might be worth the risk to float your loan until interest rates drop as much as possible.
Flood insurance compensates for physical damage to a property that results from floods. This type of damage, like mold, is typically not covered by standard homeowners insurance.
Forbearance is when a lender suspends payments on your mortgage to allow you to make up for delinquent payments. Instead of beginning the foreclosure process, your lender may negotiate this option with you if you have missed payments as a result of job loss or other personal misfortune.
Foreclosure, also known as repossession, is the legal process by which a lender takes possession of a home due to the homeowner’s failure to meet the terms of their mortgage contract. The mortgaged property may be sold to pay off the loan that’s in default.
The Federal Home Loan Mortgage Corporation, known as Freddie Mac, is a government-sponsored enterprise that buys mortgages from lenders. By selling mortgages to Freddie Mac, lenders can replenish their funds so they can lend money to other borrowers, increasing the money available for new home purchases.
A fully amortizing mortgage is a loan in which both principal and interest are paid fully through scheduled installments by the end of the loan term. A fully amortizing payment is the calculated amount that the borrower is required to pay each month to ensure that the remaining balance is paid by the end of the loan’s term.
A grace period is the time during which a loan payment can be made after its due date without incurring a late penalty. The grace period on mortgage payments is specified as part of the loan terms and typically lasts one or two weeks after the payment due date.
A graduated payment mortgage lets you start with a low monthly mortgage payment that gradually increases over the first few years of the loan term. This type of mortgage may make sense for homeowners who expect their income to increase over the next several years.
Gross income is your total income before taxes and expenses are deducted. Your lender uses your gross income to qualify you for a mortgage.
Hazard insurance is an arrangement in which you pay a premium in exchange for being compensated should your house be damaged due to a fire or another natural disaster. Check your insurance declaration page to see what hazards are covered.
A home appraisal is an estimate of the fair market value of your property based on recent sales in your neighborhood. A qualified appraiser who has training, experience and insight into the marketplace appraises the home and prepares a report. Lenders usually require appraisals to ensure that the mortgage loan amount is not more than the value of the property.
A home equity line of credit (HELOC) uses your home as collateral for a loan with an agreed upon maximum amount. You can repeatedly draw money from this line of credit for a specified period of time. Rocket Mortgage^Ⓡ does not offer HELOC loans.
A home equity loan is a second mortgage that converts home equity into cash. This type of loan is typically used for financing home improvements or paying off high-interest credit card debt.
A home inspection is a professional evaluation of the structural and mechanical condition of a property. The home inspection is a crucial part of the home buying process and will make you aware of any potential hazards or home repairs that may be needed before closing on your mortgage.
A home loan is a type of credit that you can use to purchase or refinance a home.
Homeowners insurance is an arrangement in which you pay a premium in exchange for being compensated should your house be damaged in a way that is covered by your policy. Homeowners insurance is required by all lenders to protect their investment and must be obtained before closing on your loan.
Your housing expense is the total amount spent on the expenses for your home, including your property taxes, hazard insurance and monthly mortgage payment.
The housing expense ratio is the percentage of your gross monthly income devoted to housing expenses. Your lender uses a top ratio and a bottom ratio in deciding what you can afford in housing expenses. The top ratio is calculated by dividing your new monthly mortgage payment by your monthly gross income.

Typically, this ratio should not exceed 28%. The bottom ratio is equal to your new monthly mortgage payment plus your monthly debt divided by your gross income per month. Typically, this ratio should not exceed 36%.
Impound account is another name for an escrow account.
An index is used to determine the cost of variable-rate loans, such as adjustable-rate mortgages (ARMs). Most lenders determine the interest rates in an ARM using widely published indices such as the LIBOR or the 11th District Cost of Funds Index (COFI).
Initial caps are consumer safeguards that limit the amount that the interest rate on an adjustable-rate mortgage can change during the first adjustment period. For example, if your initial cap is 1% and your current rate is 7%, then your newly adjusted rate must fall between 6% and 8%, regardless of actual changes in the index used to calculate interest rates.
The initial interest rate is the rate charged during the first interval of an adjustable-rate mortgage. Your initial interest rate will most likely come with a cap, which means that your rate won’t increase or decrease more than a specified amount during the life of your loan. The cap protects you from a dramatic increase in your mortgage payment, and it protects your lender from rates dropping too low.
An installment loan is borrowed money that you repay over a specific period of time. Student and car loans are usually installment loans. If the amount of an installment listed on your credit report is too high, it could potentially hurt your ability to qualify for a mortgage.
Insurance is an arrangement in which you pay a premium in exchange for being compensated should your house be damaged in a way that is covered by your policy. Homeowners insurance is required to secure a home loan.
Interest is a fee that a lender charges for allowing you to borrow their money for a specific length of time.
An interest rate is the cost a lender charges you to borrow money. A basic mortgage payment is made up of principal and interest. The amount of interest you owe depends on the interest rate and the loan amount – the lower the interest rate, the less you owe in interest.
An interest rate cap is a consumer safeguard that limits the amount your interest rate on an adjustable-rate mortgage can change in an adjustment interval and/or over the life of your loan. For example, if your per-period cap is 1% and your current rate is 7%, then your newly adjusted rate can’t go lower than 6% or higher than 8%.
The interest rate ceiling is the highest interest rate that you can receive under an adjustable-rate mortgage.
An interest rate disclosure is a description of the conditions of your loan as well as the terms of your interest rate agreement.
An interest rate floor is the lowest interest rate that you can receive on an adjustable-rate mortgage.
An interest-only home loan is one that gives you the option of paying just the interest or paying the interest and as much principal as you want in any given month during an initial period. Interest-only home loans can have a fixed or an adjustable rate.
With an interest-only home loan, the interest-only period is the time during which you are only required to pay the interest portion of your monthly payment. After the interest-only period, the full principal and interest payment is due every month.
Joint liability is when two or more people share responsibility for the full amount of a debt.
Joint tenancy is a form of property ownership that gives each person equal interest in the property. If one person dies, the ownership passes to the other person.
Jumbo loans are mortgages larger than the limit set every January by the government-sponsored corporations Fannie Mae and Freddie Mac. Any loan that meets certain criteria, including falling below the limit, is considered a conforming loan eligible for purchase, while loans above that limit are considered non-conforming jumbo loans.
A junior (or second) mortgage is any loan that is obtained after the approval of the first mortgage and secured using the value of the home as collateral. In the case of a foreclosure, a senior (or first) mortgage or lien will be paid before the junior mortgage.
A real estate land contract is an agreement where a buyer makes payments toward a seller’s mortgage instead of arranging a new mortgage loan. Land contracts usually require you to pay installments to a liaison, who forwards the payments to the seller’s mortgage lender. Complete ownership of the property and title transfer does not become official until all payments are made or until you refinance the mortgage in your name.

Such an agreement usually violates a lender policy, and discovery of such transactions can empower the seller’s lender to demand full repayment of the loan.
A late charge is a penalty you pay when a payment is made after the grace period.
A lender, also known as a mortgagee, is a bank or mortgage company that offers home loans or other types of credit.
The LIBOR, or London Interbank Offered Rate, is a daily reference rate based on short-term interest rates charged among banks in the foreign money market. LIBOR rates are commonly used as a reference rate or index for adjustable-rate mortgages.
A lien is a legal claim made on a property to secure the payment of a debt. A mortgage is a type of lien because your lender has the right to seize your property if you don’t meet the terms of the mortgage agreement.
A listing agent is a real estate professional who represents the seller and helps sell their home. Listing agents handle a variety of tasks on the selling end, but their most important concern is marketing the home to potential buyers.
A mortgage loan application is an initial statement of the personal and financial information required to apply for a loan. A loan application does not legally bind you to a loan.
A loan balance is the amount of a loan that is left to be paid. The loan balance is equal to the loan amount minus the sum of all prior payments to the loan’s principal.
The Loan Estimate is a form that outlines the key details of your lender’s offer when you apply for a mortgage. The Consumer Financial Protection Bureau requires your lender to provide you with a Loan Estimate within 3 business days of receiving your application.

This standard form lists your loan amount, interest rate, monthly payment, closing costs and other details, making it easy for you to compare loans and choose the one that’s best for you.
Loan fraud is a federal crime that occurs when consumers try to qualify for a loan by giving false information.
A loan-to-value ratio (LTV) compares how much you borrow with the value of the home you’re borrowing against. It’s calculated as the amount to be borrowed divided by the home’s value and is generally expressed as a percentage.
A mortgage lock or lock-in period is a set period of time that a lender will guarantee a specific interest rate. Lock-ins protect you against rate increases during that period of time. A lock period typically lasts 15 – 60 days. To keep the mortgage rate you’ve locked, you must close your loan during that time.
A long-term loan matures in 10 years or more. The interest rates for long-term loans are typically lower than the rates for short-term loans. Monthly payments for long-term loans are also lower because they are spread out over a longer period of time.
Loss mitigation is a process in which lenders help borrowers avoid foreclosure when they have defaulted on their loan. In loss mitigation, foreclosure is considered the last option, to be initiated only if all other relief options have failed. There are several options for homeowners who can’t make their payments, from refinancing to debt consolidation.
A manufactured home, also known as a mobile home, is a dwelling that is built to the Manufactured Home Construction and Safety Standards. Manufactured homes are typically built in a factory and transported in one or two pieces on a permanent steel chassis using the home’s own wheels.

Manufactured homes are often confused with modular homes.
A mortgage margin is the difference between the index and the interest rate charged for a particular loan. The margin is a fixed percentage point that is predetermined by the lender and added to the index to compute the interest rate. A lender’s margin remains fixed for the entire term of the loan. Your lender is required to disclose the index to which your loan is tied, the margin that will be tacked on to your rate and any rate or payment caps that apply.
Maturity is the point when your mortgage, including both the principal balance and interest, is paid for in its entirety.
The maximum cash out is the most money you can get back from your mortgage transaction based on the loan information provided and the amount of equity you have in your home.
A maximum monthly payment is the largest mortgage payment for which you qualify based on the information you provided. The maximum payment includes the four major components of a typical mortgage payment: taxes, insurance, loan principal and interest.
Modular homes are constructed at a manufacturing plant or facility and then transported to a permanent site to be assembled on a permanent foundation. These homes adhere to the same construction codes as site-built homes, and often resemble traditional single-family homes.

Modular homes are often confused with manufactured homes.
A monthly mortgage payment is the amount you pay toward your mortgage debt each month. If you have an escrow account, your mortgage payment probably contains four parts: principal, interest, taxes and insurance. If you don’t have an escrow account, then your monthly mortgage payment likely consists of only principal and interest.
A mortgage is a loan used to purchase or refinance a home. The term “mortgage” can also apply to the actual legal document by which real property is pledged as security for the repayment of a loan.
The Mortgage Bankers Association (MBA) is a national organization that represents the real estate finance industry. All aspects of real estate finance hold membership in the MBA, including mortgage companies, mortgage brokers and commercial banks.

The MBA promotes fair lending practices and works to ensure that residential and commercial real estate markets are healthy. It also publishes a weekly survey that measures the amount of home purchase or home refinance applications that are submitted in the industry.
A mortgage broker gathers information about different lenders so you can compare them and decide who to choose. They can show you information like the lenders’ prices, the kinds of mortgages they offer and if they sell or service their mortgages after you get a loan from them. Mortgage brokers don’t finance home loans; lenders do that.

Rocket Mortgage^Ⓡ partners with mortgage brokers across the country to help you find the best home loan for your situation. See a list of our Preferred Partners.
Mortgage insurance is a type of insurance policy that protects your lender in case you default on your loan.

There are different types of mortgage insurance policies, including:
Mortgage insurance premium is a mortgage insurance policy that protects your lender if you default on your loan. You pay MIP when you get an FHA loan, regardless of the amount of the down payment.
A mortgage note is a legal document that obligates a borrower to repay a loan at a stated interest rate during a specified period of time. The agreement is secured by a mortgage, a deed of trust or another security instrument that gives your lender a stake in the property. Your mortgage note will state details such as your loan amount, interest rate, due dates, late charges and other loan terms.
Mortgage payoff is the act of paying down your loan’s principal balance. Early loan payoff can save you money that otherwise would have gone to interest.
See Discount Points.
See Lender.
See Borrower.
Negative amortization occurs when the outstanding principal balance of a loan goes up rather than down because your monthly payments don’t cover the full amount of the interest due. The monthly shortfall in payment is added to the unpaid principal balance of the loan. Rocket Mortgage^Ⓡ does not offer negative amortization loans.
See Deferred Interest Loan. Rocket Mortgage^Ⓡ does not offer negative amortization loans.
No income verification mortgages are home loans for which the lender doesn’t require you to prove that your income meets certain requirements.

Generally, when you apply for a mortgage, you’re required to show proof of income through pay stubs and W-2 forms. However, income verification can be difficult for some borrowers, especially those who are self-employed or who receive a commission-based salary. In this case, a no income verification mortgage may be used. Rocket Mortgage^Ⓡ does not offer no income verification loans.
A no ratio loan is a home loan for which there is no debt-to-income ratio for the lender to consider because you aren’t required to disclose your income. Generally, you must have good credit and abundant assets to qualify for one of these loans. No ratio loans offer convenience to borrowers for whom gathering documentation could be a logistical nightmare.
A non-assumption clause is a statement in a mortgage contract that forbids the transfer of the mortgage to another borrower without the prior approval of the lender.
A notary is a certified witness who validates signatures on official documents. Notaries must obtain licensing and become certified in the state where they are employed. A notary can authenticate the signing of contracts between individuals and the government, or between two individuals.

Notary services are necessary during the home buying and selling process. A notary signing agent is always present during the transfer of real estate to verify signatures on various documents. For example, a notary would verify the signatures on a deed.
A note is a legal document that obligates you to repay a loan at a stated interest rate during a specified period of time. The agreement is secured by a mortgage, a deed of trust or another security instrument.
A notice of default is a written document that states that a borrower has defaulted on a loan and that legal action may be taken. Failure to meet legal obligations, including failure to make mortgage payments by a specified date, is cause for notices of default.
An online mortgage lender is a lending company that uses the internet for a large portion of the mortgage process. By eliminating much of the paperwork and “middleman” steps associated with the traditional process, online lenders, like Rocket Mortgage^Ⓡ, offer a faster, easier experience.
A payment cap is a consumer safeguard that limits the amount that your monthly payment on an adjustable-rate mortgage can change. It ensures that you don’t face drastically increased payments on your mortgage. However, since payment caps don’t limit the amount of interest you can accrue, it’s possible that your interest due could be larger than your payment amount. In this case, your principal balance would increase instead of decrease.
A payment schedule indicates what your required monthly payment will be throughout the life of your loan. For fixed-rate VA, FHA and uninsured conventional loans, the payment schedule indicates what your required monthly payment will be throughout the life of your loan. The payment schedule for fixed-rate insured loans may show a gradual decrease in payment amount over time due to a declining insurance premium. For adjustable-rate mortgages, the payment schedule varies by loan type and is based on conservative assumptions of future interest rates.
Per diem interest is interest calculated per day. Depending on the day of the month on which closing takes place, you will have to pay interest from the date of closing to the end of the month. Your first mortgage payment will probably be due the first day of the following month.
A periodic cap is a consumer safeguard that limits the amount that the interest rate on an adjustable-rate mortgage can change in an adjustment interval. For example, if your periodic rate cap is 1% and your current rate is 7%, then your newly adjusted rate must fall between 6% and 8%, regardless of actual changes in the index that your interest rate is tied to.
A piggyback mortgage is a second mortgage or home equity loan that closes at the same time as the first mortgage. Homeowners sometimes use a piggyback mortgage to lower the loan-to-value ratio of the first loan, enabling them to avoid paying private mortgage insurance.
PITI stands for principal, interest, taxes and insurancees, which are the standard components of a monthly mortgage payment. Payments of principal and interest go directly toward repaying the loan, while the portion of the PITI payment that covers taxes and insurance (including homeowners insurance and, if applicable, mortgage insurance) go into an escrow account to cover the fees when they are due.
A PITI reserve is an amount of cash that you’re required to keep on hand after paying for your down payment and closing costs. Your lender may require you to show that you have enough assets to pay your PITI (principal, interest, taxes and insurance) for a predetermined number of months to qualify for a mortgage.
A planned unit development (PUD) is a project or subdivision that consists of common property and improvements that are owned and maintained by an owners association for the benefit and use of the individual units within the project.

For a project to qualify as a PUD, the owners association must require automatic, non-severable membership for each individual unit owner and provide for mandatory assessments. PUDs offer varied land uses, including housing, recreation, commercial centers and industrial parks, all in one neighborhood.
See Discount Points.
Discount points, often referred to simply as points, are an upfront fee paid to the lender at the time that you get your loan. Each point equals 1% of your total loan amount. In general, the more points you pay, the lower your interest rate is. However, the more points you pay, the more cash you need upfront since points are paid at closing.
Also called approval and prequalification, preapproval is the process of determining how much money you’re eligible to borrow to buy or refinance a home, usually before you apply for a loan. At a minimum, your lender will ask about your income and assets and check your credit.
Prepaid expenses are taxes, insurance and assessments paid in advance of their due dates. These expenses are included in your closing costs.
Prepaid interest refers to interest that’s paid at closing. When you get a mortgage, you’ll usually pay prepaid interest to cover interest charges that accrue between your closing date and the period covered by your first payment.
Mortgage prepayment is the full or partial repayment of your loan’s principal balance before the contractual due date. The most popular form of prepayment is through refinancing to lock in a lower interest rate. Some lenders will attach prepayment penalties to loans in exchange for a lower interest rate to discourage borrowers from refinancing.
Also called approval and preapproval, prequalification is the process of determining how much money you’re eligible to borrow to buy or refinance a home, usually before you apply for a loan. At a minimum, your lender will ask about your income and assets and check your credit.
A prime rate is an interest rate that commercial banks charge their best or most credit-worthy clients, who are usually prominent and stable business clients who aren’t very likely to default on a loan. The likelihood or risk of default is mainly what determines the interest rate a bank will charge you.

The prime rate is not the same as the loan rate that’s charged on personal property loans; however, the prime lending rate is often used in calculating mortgages. Mortgage rates on consumer loans are generally higher than prime interest rates because individual borrowers are more likely to default on a loan than stable business borrowers, such as large corporations.
The principal is the part of the loan’s balance still owed to the lender, or the loan amount borrowed from the lender, excluding interest.
Private mortgage insurance is a mortgage insurance policy that protects your lender in case you default on your loan. You pay PMI when you get a conventional loan, usually if your down payment is less than 20% of the home’s appraised value. Your monthly mortgage payment usually includes your PMI. FHA and VA loans have different guidelines.
Property taxes, also known as real estate taxes, are assessed on your property by your local government (city, county, village or township) for the various services provided to you. When you pay property taxes each year, you’re paying for necessities such as police and fire department services, garbage pickup and snow removal.

Typically, you’ll pay property taxes into an escrow account, and your lender will forward the payment to your local government when it becomes due. Property taxes and the interest you pay on your mortgage are usually tax deductible.
A purchase agreement, also known as an agreement of sale or sales agreement, is a contract between a buyer and a seller that states the terms and conditions for the sale of a property. This document states the purchase amount and may also include stipulations such as which appliances stay in the house and when the buyer will take possession of the home.
Rate lock, also known as rate protection, keeps your interest rate from rising between the time you apply for a loan and the time you close your loan.
See Rate Lock.
A real estate agent is a person who is licensed to represent a buyer or a seller in a real estate transaction in exchange for a commission. Most agents work for a real estate broker or an accredited REALTOR^®.
The Real Estate Settlement Procedures Act (RESPA) is a federal law that gives you the right to review information about your closing costs after you apply for a loan and again at closing.
See Property Taxes.
The real financing cost takes into account specific costs and fees, potential rate changes and the projected amount of time you will have the loan. The costs and fees are distributed over the time you plan to be in the house, allowing you to do an apples-to-apples comparison of a variety of loan types.

The real financing cost is different from the annual percentage rate, which assumes that you keep your loan for the entire term and includes only some of your loan fees.
Real property is a parcel of land and any improvements permanently affixed to it, such as buildings.
A REALTOR ^® is a real estate agent who is a member of the National Association of REALTORS^®.
Mortgage refinancing is the process of paying off one loan with the proceeds from a new loan secured for the same property. Mortgage refinancing is usually done to secure better loan terms than your current loan, like a lower interest rate or a lower monthly payment.
See foreclosure.
Requested cash out is the amount of money you’re asking to get back from your mortgage transaction. It’s important to remember that your closing costs will be subtracted from this amount.
Expressed as a percentage, return on investment is the ratio of how much you spend on or invest in making improvements compared to how much the improvements are worth to someone who is interested in buying your home.
A reverse mortgage (also known as a home equity conversion mortgage) is a loan that allows you to get money from the equity in your home without having to make monthly payments. As time goes on, your debt will increase and your home’s equity will decrease. The amount you receive from a reverse mortgage depends on your age and the value of your home. You must be at least 62 years old to qualify for a reverse mortgage. Rocket Mortgage^Ⓡ does not offer reverse mortgages.
Under the provisions of the Truth-in-Lending Act, the right to rescission is your right to cancel certain kinds of loans within 3 days of signing a mortgage.
See Purchase Agreement.
A second mortgage is a lien taken out on a property that already has one mortgage. In the case of a foreclosure, the lender who holds the second mortgage gets paid only after the lender holding the first mortgage is paid.
A security instrument is a mortgage deed that gives your lender a stake in your property.
A seller concession is an agreement between you and the seller in which the seller agrees to pay for certain costs on your behalf at the mortgage closing. A seller can contribute anywhere from 2% to 9% of the home’s purchase price or appraised value, depending on the size of the loan, the type of mortgage and the type of occupancy.
A seller’s market occurs when housing market conditions favor sellers. Having more buyers than sellers in the market tends to create a competitive environment that forces home prices up as buyers fight to outbid one another.
A mortgage servicer, or loan servicer, is the party that you pay your mortgage payments to each month. The mortgage servicer is in charge of processing your mortgage payment and crediting your loan account. In addition, servicers usually maintain your escrow account.
See Closing.
Also known as closing costs, settlement costs cover services that must be performed to process and close your loan application. Examples include title fees, recording fees, appraisal fees, credit report fees, pest inspection fees, attorney’s fees, survey fees and taxes.
A short-term loan matures in less than 10 years. The interest rates for short-term loans are typically higher than for long-term loans. Monthly payments are also higher because they are spread over a shorter period of time.
Simple interest is calculated on a principal sum, rather than compounded on the accumulated interest of prior months or the total amount owed. A simple interest mortgage is a loan that calculates interest daily.
A single-family home is the residence of just one family.
A site condominium is a detached, single-family dwelling that is considered a condominium because of the way it was planned by the builder.
Now illegal, stated income loans were a type of mortgage that allowed people to get a loan without proving their income. Stated income loans were made illegal in 2010 by the Dodd-Frank Wall Street Reform and Consumer Protection Act.
A structural improvement is any permanent improvement made to your property that is not strictly for decorating purposes. Examples include additions, new flooring, kitchen or bathroom upgrades, new windows and central air. Swimming pools are considered structural improvements only if they are in-ground and your property is in a climate that has warm weather year-round.
Subject property is the home you’re seeking to finance or refinance with a mortgage.
A mortgage survey is a bird’s-eye sketch of your property that shows the boundary lines of your lot and details any encroachments on the property.
Sweat equity is the value that is added to a property in the form of labor or services performed by the owner rather than by someone the owner pays. Instead of building equity through paying down principal on your mortgage, you can make home improvements that increase the value of your home, such as expanding your kitchen, remodeling your bathroom, putting in new flooring or replacing the roof.
A tax impound is money paid to and held by a lender for annual property tax payments.
Tax liens are claims that are imposed on property to secure payment of taxes. While personal debt follows you wherever you go, tax liens on real estate stay with the property. This means that the property owner is responsible for payment even if the tax delinquency was incurred by a prior owner.

Tax liens can be paid in a variety of ways, including through an escrow account. If the lien goes unpaid for a long time, the property may be seized and sold at a property tax sale.
A real estate tax sale is a public sale of property by a government authority as a result of the property owner’s failure to pay taxes. A property tax sale is held after notice is given to the owner and the mortgage company invested in the property. Tax sale properties are sold to the highest bidder at a public auction.
The term of a loan is the period of time between the loan closing and the day full repayment is due. For example, a 30-year fixed-rate loan has a term of 30 years.
A title is the actual document that shows you own a property. Individuals who have legal ownership in a property are considered “on title” and will sign the mortgage and other documentation.
A title company insures property titles and conducts closings on real estate transactions. Title companies also handle the transfer of funds among the parties.
Title insurance protects your lender against any title dispute that may arise over your property. Title insurance is a required fee that you pay at closing. Having a copy of your title insurance will help verify the legal description of the property, the taxes and the names on the title. You can also purchase owner’s title insurance, which protects you as a homeowner.
A title search is an examination of local real estate records to ensure that the seller is the legal owner of a property and that there are no liens or other claims against the property.
The total payment is the total amount you will have paid over the life of a loan for principal, interest and prepaid finance charges, assuming you keep the loan to maturity and make only the required monthly payments.
A trade line is a credit account listed on your credit report. Trade lines can affect your credit score, determine which financial programs you’re eligible for and impact your loan approval process.
A transfer of servicing occurs when your existing mortgage servicer transfers or “sells” your home loan to another company. When this happens, you’re required to make payments to your new servicer.

A transfer of servicing does not affect the terms of the loan or your payment amount. Transfers of servicing are a common occurrence in the mortgage industry and do not require the borrower’s consent.
A real estate transfer tax is paid when the title passes from one owner to another. A transfer tax is imposed when there is a legal requirement for registration of the transfer.
TransUnion^Ⓡ is one of the three largest credit bureaus in the United States.
The federal Truth-in-Lending Act (TILA) is a law requiring that a lender disclose the terms of a mortgage (including the APR and other charges) in writing. TILA is designed to protect consumers and ensure clear disclosure of the key terms of the loan, as well as any costs or fees involved. The act also requires the right of rescission period for certain types of loans.
The U.S. Department of Housing and Urban Development (HUD) is the government agency established to implement federal housing and community development programs. HUD oversees the Federal Housing Administration, regulates Fannie Mae and Freddie Mac, and watches over all aspects of the housing and real estate market to protect consumers.
Underwriting is the process of determining the risks involved and establishing suitable terms and conditions for a particular loan. Mortgage underwriting includes a review of the potential borrower’s credit, employment history and financial statements, as well as a judgment of the quality of the property.
USDA loans, also known as Rural Development loans, are loans backed by the U.S. Department of Agriculture. USDA loans are designed to make housing more affordable for people with a low-to-moderate income living in qualifying rural areas. If you qualify, you can buy a home with no down payment. You won’t pay private mortgage insurance but will pay additional fees that are similar to it.
Usury is charging an amount of interest in excess of the rate established by law.
A VA loan is a mortgage loan guaranteed by the U.S. Department of Veterans Affairs. The VA home loan was created to make housing affordable for eligible U.S. veterans and members of the military.

VA home loans are available to veterans, reservists, active-duty military personnel and surviving spouses of veterans with 100% entitlement. Eligible veterans may be able to buy a home with no down payment, refinance up to 100% of the home’s value and pay no private mortgage insurance. Homeowners insurance for veterans often comes at reduced rates.
A variable rate is an interest rate that changes periodically in relation to an index.
See Adjustable-Rate Mortgage.
A verification of deposit form is a document signed by your bank or other financial institution verifying your account balance and history.
A verification of employment form is a document signed by your employer verifying your position and salary. When you apply for a mortgage, you’re usually required to show proof of income, such as pay stubs, W-2s and a verification of employment.
A verification of a mortgage is documentation of your mortgage payment history. The verification of mortgage, which is often required when applying for a loan, is used to verify your existing balance and monthly payments, and to check for any late payments on the account. A verification of mortgage is one of the many documents needed to prove that you are capable of paying back the money loaned, and is provided by your current lender.
A W-2 is a tax form that reports the wages you’ve earned and the taxes withheld by your employer.
A waiver is a voluntary relinquishment or surrender of some right or privilege.
A walkthrough is a buyer’s final inspection of a home that identifies problems that may need to be corrected before closing. Typically, home buyers will conduct a final walkthrough just prior to closing but after the previous owners have moved out. This is to confirm that the home is in the same condition as the day the purchase agreement was signed.

During the final walkthrough, you should make sure that the seller has followed through with any repairs indicated in the purchase agreement and that everything the seller was supposed to remove or leave behind was removed or left behind.
Zoning Ordinance
A zoning ordinance is a local law that establishes building codes and usage regulations for properties in a specified area. Zoning ordinances are designed to keep incompatible entities apart, preventing new development from harming existing residential neighborhoods or business districts.

Did you find what you were looking for in our mortgage terms glossary? If you have any questions, don’t hesitate to chat with us. If you’re ready to learn more about home buying, check out our home buyer’s guide and see what today’s rates are.

Victoria Araj is a Section Editor for Rocket Mortgage and held roles in mortgage banking, public relations and more in her 15+ years with the company. She holds a bachelor’s degree in journalism with an emphasis in political science from Michigan State University, and a master’s degree in public administration from the University of Michigan.

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