Once a buyer is financing the purchase, a parallel process runs alongside escrow: loan underwriting. This category covers the vocabulary a lender uses, from loan structures like adjustable-rate mortgages, bridge loans, and assumable loans, to the disclosures required along the way — the Loan Estimate, the Closing Disclosure, and the annual percentage rate that reflects the loan's true cost. Escrow doesn't originate the loan, but it can't close without the lender's funding, so escrow officers track loan contingency deadlines and wait on final loan documents before setting a closing date. If a term below sounds like it belongs to a bank rather than an escrow company, that's because it does — but escrow has to speak this language fluently to keep a financed transaction on schedule.
- Adjustable Rate Mortgage (ARM)
- A mortgage loan with an interest rate that changes periodically based on a benchmark index. ARMs typically offer a lower initial rate for a fixed period before adjusting at set intervals.
- All-Inclusive Trust Deed (AITD)
- A seller financing arrangement where the seller carries back a new loan that wraps around and includes the existing underlying loan. The buyer makes one payment to the seller who then makes payments on the underlying loan. Also called a wrap-around mortgage.
⚠ Risk warning: AITDs are complex seller-financing instruments that may trigger the due-on-sale clause of the underlying loan. All parties should consult with a real estate attorney before proceeding. See the Wire Fraud Checklist tutorial →
- Annual Percentage Rate (APR)
- The true annual cost of borrowing expressed as a percentage that includes the interest rate plus other loan costs such as origination fees and mortgage insurance. APR is always higher than the stated interest rate.
- Appraisal
- A professional opinion of a property's market value conducted by a licensed appraiser. Lenders require an appraisal to ensure the property value supports the loan amount.
- Assumable Loan
- A mortgage loan that can be transferred from the seller to the buyer, allowing the buyer to take over the existing loan terms including the interest rate. FHA and VA loans are generally assumable subject to lender approval.
- Blanket Loan
- A single mortgage loan that covers multiple properties. Commonly used by investors and developers. A partial release clause may allow individual properties to be sold and released from the lien upon payment of a specified amount.
- Bridge Loan
- A short-term loan that allows a homeowner to purchase a new property before selling their existing one. Bridge loans are secured by the borrower's current home and are repaid when that home sells.
- Closing Disclosure (CD)
- A standardized five-page form provided by the lender at least three business days before closing that shows final loan terms and actual closing costs. Required under TRID and must be reviewed carefully against the Loan Estimate.
- Conventional Loan
- A mortgage loan that is not insured or guaranteed by a government agency. Conventional loans must conform to Fannie Mae or Freddie Mac guidelines for purchase on the secondary market.
- Cross-Collateralization
- A financing arrangement where more than one property serves as collateral for a single loan. If the borrower defaults the lender can pursue all collateralized properties.
- Debt-to-Income Ratio (DTI)
- A measure of a borrower's monthly debt payments compared to their gross monthly income. Lenders use DTI to evaluate a borrower's ability to manage monthly payments and repay the loan.
- Deed of Trust
- The security instrument used in California that gives the lender a lien against the property as collateral for the loan. Unlike a mortgage, a deed of trust involves three parties: the borrower (trustor), the lender (beneficiary), and a neutral trustee.
- Discount Points
- Prepaid interest paid to the lender at closing to reduce the interest rate on the loan. One point equals one percent of the loan amount. Paying points makes sense if the borrower plans to keep the loan long enough to recoup the upfront cost.
- Due-on-Sale Clause
- A provision in most conventional mortgage loans requiring the full loan balance to be paid when the property is sold or transferred. Also called an acceleration clause. Prevents loan assumptions without lender approval.
- FHA Loan
- A mortgage loan insured by the Federal Housing Administration. FHA loans allow lower down payments and more flexible qualifying standards but require mortgage insurance premiums.
- Fixed Rate Mortgage
- A mortgage loan with an interest rate that remains constant for the entire term of the loan. Monthly principal and interest payments never change making budgeting predictable for the borrower.
- Funding
- The disbursement of loan proceeds by the lender to escrow. Funding typically occurs on the day of or day before recording. Escrow cannot record until funding is confirmed.
- Hard Money Loan
- A short-term loan secured by real property made by private investors or companies rather than traditional lenders. Hard money loans are based primarily on property value rather than borrower creditworthiness and carry higher interest rates and fees.
- Impound Account
- An account held by the lender where the borrower deposits monthly amounts for property taxes and insurance. The lender pays these expenses on behalf of the borrower when they come due. Also called an escrow account by lenders.
- Jumbo Loan
- A mortgage loan that exceeds the conforming loan limits set by Fannie Mae and Freddie Mac. Jumbo loans typically require larger down payments, higher credit scores, and more stringent underwriting.
- Loan Commitment
- A formal written offer from a lender to provide a mortgage loan under specific terms and conditions. A loan commitment indicates the lender has completed underwriting and is prepared to fund the loan.
- Loan Contingency
- A provision in the purchase agreement that makes the buyer's obligation to purchase contingent upon obtaining financing on specified terms. Also called a financing contingency.
- Loan Documents
- The complete package of documents prepared by the lender that the borrower signs at closing including the promissory note, deed of trust, and various required disclosures. Also called loan docs.
- Loan Estimate (LE)
- A standardized three-page form provided by the lender within three business days of receiving a loan application that discloses key loan terms and estimated closing costs. Required under TRID.
- Loan-to-Value Ratio (LTV)
- The ratio of the loan amount to the appraised value or purchase price of the property, whichever is lower. Expressed as a percentage. A lower LTV generally results in better loan terms and lower risk for the lender.
- Origination Fee
- A fee charged by the lender for processing and originating the loan. Typically expressed as a percentage of the loan amount and disclosed on the Loan Estimate and Closing Disclosure.
- Prepaid Items
- Expenses the buyer must pay at closing that are not fees but rather advance payments for ongoing costs including prepaid interest, homeowner's insurance premium, and initial impound account deposits.
- Private Mortgage Insurance (PMI)
- Insurance required by conventional lenders when the borrower's down payment is less than 20% of the purchase price. PMI protects the lender against default and is typically paid monthly by the borrower.
- Promissory Note
- The borrower's written promise to repay the loan under specific terms including interest rate, payment schedule, and maturity date. The promissory note is the personal obligation of the borrower.
- Rate Lock
- A lender's commitment to honor a specific interest rate for a set period while the loan is being processed. Rate locks typically range from 15 to 60 days and protect the borrower from rate increases during the escrow period.
- Subject-To Financing
- A creative financing arrangement where the buyer takes title to the property subject to the existing mortgage without formally assuming the loan. The original borrower remains liable on the note while the buyer makes the payments.
⚠ Risk warning: Subject-to financing carries significant risk for both parties. The seller remains liable on the loan and the due-on-sale clause may be triggered. Both parties should consult a real estate attorney before proceeding. See the Wire Fraud Checklist tutorial →
- TRID
- The TILA-RESPA Integrated Disclosure rule that combined the Truth in Lending Act and Real Estate Settlement Procedures Act disclosures into the Loan Estimate and Closing Disclosure forms. Effective October 2015.
- Underwriting
- The process by which a lender evaluates the risk of making a mortgage loan by reviewing the borrower's creditworthiness, income, assets, and the property value.
- VA Loan
- A mortgage loan guaranteed by the U.S. Department of Veterans Affairs available to eligible veterans, active-duty service members, and surviving spouses. VA loans typically require no down payment and no private mortgage insurance.