An acceleration clause is a mortgage provision that allows the lender to demand full repayment of the loan immediately if the borrower violates certain conditions — most commonly missing payments or selling the property without permission. It is the legal mechanism behind the due-on-sale clause and gives lenders a tool to protect their investment when loan terms are breached.

An adjustable-rate mortgage has an interest rate that can change periodically based on market conditions. ARMs typically start with a lower introductory rate for a fixed period (e.g., 5 years), then adjust annually. A 5/1 ARM means the rate is fixed for 5 years, then adjusts every 1 year. Rate caps limit how much the rate can increase per adjustment and over the life of the loan.

An ARM cap is a limit on how much an adjustable-rate mortgage's interest rate can change at any one adjustment period or over the life of the loan. Caps are expressed in three numbers (e.g., 2/2/5): the first limits the initial rate change, the second limits each subsequent change, and the third limits the total lifetime change. Caps protect borrowers from extreme payment increases.

After-Repair Value is the estimated market value of a property after planned renovations or repairs are completed. It is commonly used by lenders in fix-and-flip or renovation loan programs (like FHA 203k) to determine how much to lend based on the property's future value rather than its current distressed condition. ARV is typically determined by a licensed appraiser.

Amortization is the process of gradually paying off a mortgage through regular scheduled payments. Each payment is split between principal (reducing the loan balance) and interest. Early payments are mostly interest, while later payments are mostly principal. An amortization schedule shows this breakdown for every payment over the life of the loan.

An amortization schedule is a complete table of periodic mortgage payments, showing the exact amount of each payment that goes toward principal and interest, plus the remaining loan balance after each payment. It helps borrowers understand how their debt decreases over time and how much total interest they will pay over the life of the loan.

The Annual Percentage Rate represents the true yearly cost of a mortgage, including both the interest rate and additional fees such as mortgage insurance, closing costs, and points. APR is always equal to or higher than the nominal interest rate, making it a more accurate measure for comparing loan offers from different lenders.

A mortgage appraisal is an independent professional assessment of a home's market value. Lenders require appraisals before approving a mortgage to ensure they are not lending more than the property is worth. The appraiser considers recent comparable sales, the property's condition, location, and features to determine a fair market value.

The appraised value is the dollar amount a licensed appraiser assigns to a property based on its condition, location, size, and recent comparable sales. Lenders use the appraised value — not the purchase price — to determine how much they will lend. If the appraised value comes in lower than the agreed purchase price, the buyer may need to make up the difference in cash or renegotiate.

The assessed value is the dollar amount a local government tax assessor assigns to a property for the purpose of calculating property taxes. It is often a percentage of the property's market value and may differ significantly from the appraised value or the purchase price. Assessed value can change annually based on local government reassessments.

An assumable loan is a mortgage that can be transferred from the seller to the buyer with lender approval, allowing the buyer to take over the existing loan's balance, rate, and terms. This is especially valuable when the existing loan carries a lower interest rate than current market rates. FHA, VA, and USDA loans are generally assumable; most conventional loans are not due to due-on-sale clauses.

An assumable mortgage allows a home buyer to take over the seller's existing mortgage, including its interest rate and remaining balance. This can be advantageous when the existing rate is lower than current market rates. FHA and VA loans are generally assumable, while most conventional loans are not.

A balloon mortgage requires small monthly payments for a set period (usually 5 to 7 years), followed by one large "balloon" payment of the remaining balance. These loans carry significant risk because borrowers must either pay the lump sum, refinance, or sell the home when the balloon payment is due.

A basis point is one one-hundredth of one percent (0.01%). Mortgage professionals use basis points to describe small rate changes precisely. For example, if a mortgage rate increases from 6.50% to 6.75%, that is a 25 basis point increase. Discount points and origination fees are also sometimes quoted in basis points. Understanding basis points helps you compare rate quotes and understand lender pricing adjustments.

A biweekly mortgage payment schedule requires a payment every two weeks instead of once a month. Because there are 52 weeks in a year, this results in 26 half-payments — or 13 full monthly payments — instead of 12. The extra payment each year reduces the loan balance faster, saving interest and shortening the loan term.

A biweekly mortgage payment is half your normal monthly mortgage payment made every two weeks. Over a year, this schedule produces 26 half-payments (equivalent to 13 full payments), effectively adding one extra full payment annually. This accelerates principal reduction and can shorten a 30-year loan by several years while saving thousands in interest.

The break-even point in a refinance is the number of months it takes for the accumulated monthly savings from a lower payment to equal the total closing costs paid. For example, if closing costs are $5,000 and monthly savings are $200, the break-even point is 25 months. If you plan to stay in the home longer than the break-even period, refinancing is generally financially beneficial.

A bridge loan is a short-term loan that helps homeowners finance a new home purchase before their current home is sold. It "bridges" the gap between buying and selling. Bridge loans typically have higher interest rates and fees than standard mortgages and are meant to be repaid quickly — usually within 6 to 12 months.

A mortgage buydown is a financing technique where the borrower (or seller) pays extra upfront to reduce the interest rate. A permanent buydown lowers the rate for the life of the loan. A temporary buydown (such as a 2-1 buydown) reduces the rate for the first 1 or 2 years, then returns to the original rate.

ARM caps are limits on how much the interest rate can change. Periodic caps limit rate changes at each adjustment. Lifetime caps limit the total rate change over the life of the loan. For example, a 2/2/5 cap means the rate can move up or down 2% at each adjustment, with a maximum lifetime change of 5%.

Cash reserves are liquid assets a borrower has remaining after paying the down payment and closing costs. Lenders may require borrowers to have a certain number of months of mortgage payments (typically 2–6 months of PITI) held in reserve as a safety net. Having strong reserves can help borrowers qualify for a loan or offset other risk factors like a lower credit score or higher DTI.

A cash-out refinance replaces your existing mortgage with a larger loan, allowing you to receive the difference in cash. The cash can be used for home improvements, debt consolidation, education, or other expenses. The new loan amount is limited by your available equity, typically up to 80% of the home's value.

A Certificate of Eligibility is a document issued by the U.S. Department of Veterans Affairs that confirms a veteran, active-duty service member, or surviving spouse is eligible to apply for a VA home loan. Lenders require a COE as part of the VA loan process. It can be requested online, through a lender, or by mail using VA Form 26-1880.

The Consumer Financial Protection Bureau is a U.S. government agency established in 2011 to protect consumers in the financial marketplace. In mortgage lending, the CFPB enforces rules requiring lenders to provide Loan Estimates and Closing Disclosures, prohibits unfair lending practices, and oversees the TRID (TILA-RESPA Integrated Disclosure) rules that govern mortgage disclosures.

A clear title means a property has no outstanding claims, liens, disputes, or encumbrances that could affect ownership. Lenders require a clear title before approving a mortgage. A title search is performed to verify ownership history and identify any issues. Title insurance protects against hidden title defects.

Closing is the final step in a real estate transaction where the buyer signs the mortgage documents, pays closing costs, and the property title transfers from seller to buyer. The closing typically takes place at a title company, attorney's office, or escrow company. At closing, the buyer receives the keys to the new home.

A closing agent is the neutral third party responsible for managing the final steps of a real estate transaction. They collect and disburse funds, prepare closing documents, ensure all conditions of the sale are met, and record the deed with the local government. Depending on the state, a closing agent may be a title company representative, escrow officer, or real estate attorney.

Closing costs are fees and expenses paid at the closing of a real estate transaction, beyond the property price. They typically range from 2% to 5% of the loan amount and include appraisal fees, title insurance, attorney fees, origination fees, recording fees, and prepaid expenses like property taxes and insurance.

A Closing Disclosure is a five-page form that lenders must provide to borrowers at least three business days before closing. It details the final loan terms, monthly payment, and itemized closing costs. Borrowers should carefully compare it to their Loan Estimate to identify any unexpected changes before signing. The Closing Disclosure replaced the HUD-1 Settlement Statement for most transactions in 2015.

The Closing Disclosure is a five-page standardized form required by the Consumer Financial Protection Bureau (CFPB) that lenders must deliver to borrowers at least three business days before closing. It shows final loan terms, the exact monthly payment, itemized closing costs, and the cash needed to close. Borrowers should compare it carefully to their original Loan Estimate before signing.

A Closing Protection Letter is issued by a title insurance underwriter and protects lenders (and sometimes buyers) against losses caused by the closing agent's fraud, dishonesty, or failure to follow closing instructions. Many lenders require a CPL as part of the closing process to ensure funds are handled properly.

The Combined Loan-to-Value ratio adds together all mortgage balances (first mortgage, HELOC, home equity loan) and divides by the property value. Lenders use CLTV to evaluate the total debt secured by a property. A lower CLTV means more equity and less risk for the lender.

A co-borrower (also called a co-applicant) is a person who applies for a mortgage alongside the primary borrower. Both parties are equally responsible for repaying the loan. Co-borrowers' incomes and credit scores are both considered during underwriting, which can help qualify for a larger loan or better interest rate.

In a mortgage, the collateral is the property being purchased. The home secures the loan, meaning if the borrower fails to make payments, the lender has the legal right to seize and sell the property through foreclosure to recover the outstanding loan balance.

A conforming loan is a mortgage that meets the guidelines set by Fannie Mae and Freddie Mac, including loan limits set annually by the Federal Housing Finance Agency (FHFA). Conforming loans can be sold to these government-sponsored enterprises, which keeps mortgage rates competitive. Loans above the limit are called jumbo loans.

A contingency is a condition that must be met for a real estate contract to become binding. Common contingencies include financing (the buyer must secure a mortgage), inspection (the property must pass inspection), and appraisal (the home must appraise at or above the purchase price). If a contingency is not met, the buyer can typically withdraw without penalty.

A conventional loan is a mortgage that is not insured or guaranteed by a government agency. Conventional loans can be conforming (meeting Fannie Mae/Freddie Mac guidelines) or non-conforming (jumbo loans). They typically require higher credit scores and larger down payments than government-backed loans but offer more flexibility.

A credit score is a numerical rating (typically 300–850) that represents a borrower's creditworthiness based on their credit history. Lenders use credit scores to assess the risk of lending. Higher scores result in better mortgage rates and terms. For mortgages, scores are usually pulled from all three major bureaus (Equifax, Experian, TransUnion) and the middle score is used.

The debt service ratio measures the percentage of a borrower's gross income required to cover all debt payments, including mortgage principal, interest, property taxes, and other obligations. Lenders use this ratio — similar to the debt-to-income ratio — to assess whether a borrower has sufficient income to handle their debt load. A lower ratio indicates stronger repayment capacity.

The debt-to-income ratio measures your monthly debt payments as a percentage of your gross monthly income. Lenders use DTI to determine how much mortgage you can afford. Most lenders prefer a DTI of 36% or less, with no more than 28% going toward housing expenses (the "front-end" ratio). The total including all debts is the "back-end" ratio.

A deed is a legal document that transfers property ownership from the seller (grantor) to the buyer (grantee). The deed must be signed, notarized, and recorded with the local government to be legally effective. Common types include warranty deeds (full ownership guarantee) and quitclaim deeds (no ownership guarantee).

A deed of trust is a document used in many states instead of a traditional mortgage to secure a home loan. It involves three parties: the borrower (trustor), the lender (beneficiary), and a neutral third-party trustee who holds legal title to the property until the loan is repaid. If the borrower defaults, the trustee can sell the property through a non-judicial foreclosure process, often faster than a standard foreclosure.

A deed restriction (also called a restrictive covenant) is a legally binding limitation placed on a property that controls how it can be used. Common restrictions include prohibitions on certain building types, fence heights, paint colors, or business uses. Deed restrictions run with the land, meaning they bind future owners as well. They appear in the property's title records.

A deed-in-lieu of foreclosure is when a homeowner voluntarily transfers property ownership to the lender to avoid foreclosure. The lender forgives the remaining mortgage balance in exchange. While it damages credit similarly to foreclosure, it is generally faster and less costly for both parties than the formal foreclosure process.

A mortgage default occurs when a borrower fails to meet the terms of the loan agreement, most commonly by missing payments. Lenders typically consider a loan in default after 90 days of missed payments, which can trigger foreclosure proceedings. Defaults have severe negative impacts on credit scores.

A mortgage is considered delinquent when a borrower is late on a required payment. Delinquency typically begins as soon as a payment is missed past its due date or grace period. Lenders report delinquencies to credit bureaus and may charge late fees. Prolonged delinquency — usually 90+ days — can lead to default and foreclosure proceedings.

A discount point is a fee paid to the lender at closing in exchange for a reduced interest rate on the mortgage. Each point equals 1% of the loan amount and typically lowers the rate by about 0.25%. Paying points upfront makes sense if you plan to stay in the home long enough for the monthly savings to exceed the upfront cost.

A down payment is the upfront amount paid by the buyer toward the home's purchase price, with the remainder financed by the mortgage. Down payments are expressed as a percentage of the purchase price. A 20% down payment eliminates PMI on conventional loans. Minimum down payments vary by loan type: 3% conventional, 3.5% FHA, 0% VA and USDA.

Down payment assistance programs provide grants, loans, or tax credits to help eligible homebuyers cover their down payment and sometimes closing costs. These programs are offered by state and local governments, housing agencies, nonprofits, and some employers. Eligibility often depends on income limits, purchase price limits, and whether the buyer is a first-time homebuyer.

A due-on-sale clause is a provision in most mortgage contracts that requires the full loan balance to be paid immediately when the property is sold or transferred. This prevents buyers from assuming the seller's mortgage without lender approval. It is also called an acceleration clause.

Earnest money is a good-faith deposit made by a buyer when submitting an offer on a home. It demonstrates serious intent to purchase and is typically 1–3% of the purchase price. The deposit is held in escrow and applied toward the down payment or closing costs at closing. If the buyer backs out without a valid contingency, the seller may keep the earnest money.

An earnest money deposit is the specific funds submitted by a buyer to demonstrate commitment when making an offer on a property. Held in an escrow or trust account, it signals to the seller that the buyer is serious. The amount — typically 1–3% of the purchase price — is credited toward the buyer's costs at closing or returned if a valid contingency is triggered.

Home equity is the difference between your home's current market value and the amount you still owe on your mortgage. Equity builds as you make payments and as your home appreciates in value. You can access equity through home equity loans, HELOCs, or cash-out refinancing. Equity is a key measure of your financial stake in your home.

An escrow account is a special account held by a mortgage lender or third party to collect and pay property taxes and homeowner's insurance on behalf of the borrower. Each monthly mortgage payment typically includes a portion that goes into escrow. Escrow also refers to the period between accepting an offer and closing.

An escrow account (also called an impound account) is a third-party account managed by the mortgage servicer that holds funds collected from the borrower's monthly payment to pay property taxes and homeowners insurance when they come due. The lender controls the account to ensure these obligations are never missed, protecting the collateral securing the loan.

An escrow analysis is an annual review conducted by the loan servicer to ensure the escrow account holds the right amount of funds to cover upcoming property taxes and insurance payments. If the account has a surplus, the servicer may issue a refund. If there is a shortage, the borrower's monthly payment may increase to replenish the account.

An escrow cushion is a small reserve — typically two months of escrow payments — that lenders are permitted to maintain in a borrower's escrow account as a buffer against unexpected increases in property taxes or insurance. Federal law (RESPA) limits the cushion to two months of estimated escrow payments to prevent over-collection.

Making extra payments on a mortgage means paying more than the required monthly payment, with the excess going directly toward reducing the principal balance. Even small additional monthly payments can significantly reduce the total interest paid and shorten the loan term. Always ensure extra payments are applied to principal, not future payments.

The Fair Housing Act is a federal law that prohibits discrimination in the sale, rental, and financing of housing based on race, color, national origin, religion, sex, familial status, or disability. In lending, it means lenders cannot deny mortgages, charge higher rates, or impose different terms on borrowers based on these protected characteristics.

Fannie Mae (Federal National Mortgage Association) and Freddie Mac (Federal Home Loan Mortgage Corporation) are government-sponsored enterprises that buy mortgages from lenders, package them into mortgage-backed securities, and sell them to investors. This process provides liquidity to the mortgage market, keeping rates competitive and credit available.

The Federal Housing Administration is a U.S. government agency within the Department of Housing and Urban Development (HUD) that insures mortgage loans made by approved lenders. FHA insurance protects lenders against losses if a borrower defaults, enabling lenders to offer loans with lower down payments and more flexible credit requirements. The FHA does not make loans directly.

An FHA loan is a mortgage insured by the Federal Housing Administration, designed for borrowers with lower credit scores and smaller down payments (as low as 3.5%). FHA loans require mortgage insurance premiums (MIP) for the life of the loan if the down payment is less than 10%. They are popular among first-time homebuyers and those with limited savings.

An FHA Streamline Refinance is a simplified refinancing option for existing FHA loan holders that requires minimal documentation and no new appraisal. Its goal is to reduce the borrower's monthly payment or interest rate. Borrowers must be current on their existing FHA loan and demonstrate a "net tangible benefit," such as a lower rate or payment, to qualify.

The Federal Housing Finance Agency is the independent regulatory agency that oversees Fannie Mae, Freddie Mac, and the Federal Home Loan Banks. The FHFA sets annual conforming loan limits, monitors the GSEs' financial health, and ensures they operate safely and fulfill their mission of providing liquidity to the mortgage market.

A fixed-rate mortgage has an interest rate that remains constant throughout the entire loan term. This means your monthly principal and interest payment never changes, providing predictable budgeting and protection against rising interest rates. Common terms are 10-year, 15-year, 20-year, and 30-year fixed-rate mortgages.

A float-down option is an add-on to a mortgage rate lock that allows the borrower to take advantage of a lower interest rate if rates drop after the lock is set. Lenders typically charge a fee for this option. It protects borrowers in a falling rate environment while still providing the security of a rate lock.

A flood certification is a document that determines whether a property is located in a federally designated flood zone, as mapped by the Federal Emergency Management Agency (FEMA). Lenders are required to obtain flood certifications for all mortgages. Properties in high-risk flood zones must carry flood insurance, which is a separate policy from standard homeowner's insurance.

Mortgage forbearance is an agreement between a lender and borrower to temporarily pause or reduce mortgage payments during a period of financial hardship. Forbearance is not forgiveness — the missed or reduced payments must eventually be repaid, either through a repayment plan, loan modification, or by adding them to the end of the loan term.

Foreclosure is the legal process by which a lender takes possession of a property when a borrower fails to make mortgage payments. After a certain number of missed payments, the lender files for foreclosure, and the property may be sold at auction. Foreclosure severely damages the borrower's credit and can result in loss of the home and any equity.

A foreclosure auction is a public sale of a property that has been repossessed by the lender after the borrower defaulted on the mortgage. Properties are sold to the highest bidder, often at below-market prices, and typically sold "as-is" with no warranties. If no acceptable bids are received, the lender takes title and the property becomes REO (Real Estate Owned).

Gift funds are money given to a homebuyer by a family member or other approved donor to help with a down payment or closing costs. Most loan programs allow gift funds, but lenders typically require a gift letter stating the money is a gift and not a loan. Down payment requirements and gift fund rules vary by loan type.

A gift letter is a signed document from a donor (typically a family member) stating that money provided to a homebuyer for a down payment or closing costs is a true gift and not a loan requiring repayment. Lenders require gift letters to confirm the funds won't add to the borrower's debt load. The letter typically includes the donor's name, relationship to the borrower, the amount gifted, and confirmation of no repayment obligation.

A Good Faith Estimate was a standard form lenders provided listing estimated closing costs. It has been replaced by the Loan Estimate form, which is now required by the Consumer Financial Protection Bureau within three business days of a loan application. The Loan Estimate makes it easier to compare offers from multiple lenders.

A Government-Sponsored Enterprise is a federally chartered but privately owned financial institution created by Congress to improve the flow of credit in specific sectors of the economy. In housing, the key GSEs are Fannie Mae and Freddie Mac, which purchase mortgages from lenders to replenish their funds and keep credit available to borrowers across the country.

A hard money loan is a short-term, asset-based loan funded by private investors or companies rather than banks. These loans are secured by real property and are popular among real estate investors for fix-and-flip projects. They have higher interest rates, shorter terms, and faster approval than conventional mortgages, but credit requirements are minimal.

A Home Equity Line of Credit is a revolving line of credit secured by your home's equity. Unlike a home equity loan (which provides a lump sum), a HELOC works like a credit card — you can draw funds as needed up to your credit limit during the draw period, then repay what you borrowed during the repayment period. Interest rates are typically variable.

The HELOC draw period is the initial phase of a Home Equity Line of Credit during which the borrower can access funds up to their approved credit limit. This period typically lasts 5 to 10 years. During the draw period, borrowers usually make interest-only payments on the amount they have borrowed, though some HELOCs allow principal payments as well.

The HELOC repayment period is the phase after the draw period during which the borrower can no longer access new funds and must repay the outstanding balance through fixed monthly payments of principal and interest. Repayment periods typically last 10 to 20 years. Monthly payments increase significantly compared to the interest-only draw period.

Homeowners Association (HOA) fees are monthly or annual charges paid by property owners in a planned community, condominium, or subdivision. These fees fund shared amenities, landscaping, exterior maintenance, and community management. Lenders factor HOA fees into the debt-to-income ratio. Unpaid HOA fees can result in a lien on the property, which can affect refinancing or sale.

A Home Equity Conversion Mortgage is the most common type of reverse mortgage, insured by the Federal Housing Administration. It allows homeowners aged 62 or older to convert a portion of their home equity into cash without monthly mortgage payments. The loan balance grows over time and is repaid when the borrower sells, moves out, or passes away.

A home equity loan allows you to borrow a lump sum against your home's equity at a fixed interest rate, repaid over a set term. It is sometimes called a second mortgage. Interest may be tax-deductible if used for home improvements. Unlike a HELOC, you receive all the money upfront and make fixed monthly payments.

A home inspection is a professional examination of a property's physical condition, including the structure, electrical, plumbing, HVAC, roof, and other systems. Buyers typically hire an inspector after an offer is accepted, before finalizing the purchase. The inspection report helps buyers understand the property's condition and negotiate repairs or price reductions.

Homeowners insurance is a policy that protects your home and personal property from damage or loss due to events such as fire, theft, and certain natural disasters. Lenders require it as a condition of the mortgage because the home serves as collateral. Premiums are typically collected monthly through an escrow account as part of your PITI payment.

The housing expense ratio (also called the front-end ratio) is the percentage of a borrower's gross monthly income that goes toward housing costs, including principal, interest, property taxes, and insurance (PITI). Most lenders prefer this ratio to be 28% or less. Lenders use this alongside the debt-to-income ratio to determine loan eligibility.

The U.S. Department of Housing and Urban Development (HUD) is the federal agency responsible for national housing policy and programs. HUD oversees the Federal Housing Administration (FHA), enforces fair housing laws, and administers programs for affordable housing. HUD-approved housing counselors provide free or low-cost guidance to homebuyers and struggling homeowners.

The HUD-1 Settlement Statement was a form used in real estate transactions to itemize all charges imposed on borrowers and sellers. For most residential transactions since 2015, the Closing Disclosure has replaced the HUD-1. The HUD-1 is still used for reverse mortgages and some other transactions.

An impound account is another term for an escrow account — a fund held by the lender from which property taxes and homeowner's insurance premiums are paid on the borrower's behalf. The lender collects a portion of these expenses each month as part of the mortgage payment and pays the bills when they come due, ensuring they are never missed.

The index is a benchmark interest rate used to calculate the interest rate on an adjustable-rate mortgage at each adjustment period. Common indexes include the Secured Overnight Financing Rate (SOFR), the 1-Year Treasury Constant Maturity, and the Prime Rate. The ARM rate equals the index plus the lender's margin.

Interest is the cost of borrowing money, expressed as a percentage of the loan amount (the interest rate). Mortgage interest is calculated on the outstanding principal balance each month. Over a 30-year mortgage, you may pay more in total interest than the original loan amount, which is why even small rate differences matter significantly over time.

The interest rate is the percentage of the outstanding loan balance a lender charges the borrower each year for the use of the money. On a mortgage, it determines the interest portion of each monthly payment. The interest rate differs from the APR — it does not include fees and other costs of borrowing. Even a small difference in interest rate can translate to tens of thousands of dollars over the life of a loan.

The interest rate spread is the difference between the interest rate a lender charges borrowers and the rate the lender pays to obtain funds (such as the benchmark Treasury rate or SOFR). Lenders widen their spread to account for credit risk, operational costs, and profit margin. Comparing spreads helps sophisticated borrowers understand whether a quoted rate is competitive given market conditions.

An interest-only mortgage allows borrowers to pay only the interest for a set period (typically 5–10 years), with no reduction in the principal balance. After the interest-only period, payments increase to cover both principal and interest. These loans can lower initial payments but carry risk if home values drop or rates rise.

An investment property is real estate purchased with the intent to generate income — through rent, resale, or both — rather than to serve as a primary residence. Lenders view investment properties as higher risk than owner-occupied homes and typically require larger down payments (15–25%), higher credit scores, and charge higher interest rates on investment property mortgages.

A jumbo loan exceeds the conforming loan limits set by the Federal Housing Finance Agency (FHFA). Because these loans cannot be purchased by Fannie Mae or Freddie Mac, they carry stricter qualification requirements, including higher credit scores, larger down payments, and lower debt-to-income ratios. Jumbo rates may be slightly higher or lower than conforming rates depending on market conditions.

The jumbo loan limit is the threshold above which a mortgage is too large to be purchased by Fannie Mae or Freddie Mac. Set annually by the Federal Housing Finance Agency (FHFA), the limit varies by county and is higher in high-cost areas. Mortgages exceeding this limit are called jumbo loans and come with stricter qualification standards.

A lien is a legal claim against a property, typically to secure payment of a debt. A mortgage is a type of lien. Other liens can include tax liens, judgment liens, and mechanic's liens. All liens must generally be paid off before a property can be sold or refinanced with a clear title.

Lien position refers to the priority order in which lenders are repaid if a property is sold or foreclosed. The first mortgage holds first lien position and is repaid before any other lenders. Second mortgages, HELOCs, and home equity loans hold subordinate (second or third) positions and carry more risk because they are repaid only after senior liens are satisfied.

A Loan Estimate is a standardized three-page form lenders must provide within three business days of a mortgage application. It outlines estimated loan terms, monthly payments, and closing costs, making it easier to compare offers from multiple lenders. The actual costs at closing should be close to those shown on the Loan Estimate.

A loan modification is a permanent change to one or more terms of a mortgage, made by the lender to help a struggling borrower avoid foreclosure. Modifications can include reducing the interest rate, extending the loan term, changing the loan type, or reducing the principal balance in some cases.

A loan officer is a licensed professional employed by a bank, credit union, or mortgage company who helps borrowers apply for and obtain mortgage loans. They guide applicants through the loan process, explain available products, collect required documents, and act as a liaison between the borrower and underwriter. Loan officers are compensated through salary, commission, or both.

Loan origination is the process by which a borrower applies for and receives a mortgage. It includes the application, documentation collection, underwriting, appraisal, and closing. The origination fee (sometimes called points) is a charge by the lender for processing the loan, typically 0.5–1% of the loan amount.

A loan servicer is a company responsible for managing a mortgage after it is originated — collecting monthly payments, managing the escrow account, handling customer service, and processing payoff requests. The servicer may be the original lender or a separate company the loan was sold to. Borrowers are notified when their loan is transferred to a new servicer.

The loan-to-value ratio compares the mortgage amount to the appraised value of the property. It is calculated by dividing the loan amount by the property value. For example, a $360,000 loan on a $400,000 home results in a 90% LTV. Lenders use LTV to assess risk — higher LTV ratios typically require PMI and result in higher rates.

The lock-in period is the window of time during which your locked interest rate is guaranteed by the lender. Standard lock periods are 30, 45, or 60 days. If your loan does not close before the lock expires, you may need to pay a fee to extend it or accept the current market rate.

A manufactured home loan is a mortgage used to finance a factory-built home constructed to HUD standards and installed on a permanent foundation. Manufactured homes may be financed with conventional loans, FHA Title I or Title II loans, VA loans, or USDA loans, depending on whether the home is classified as real property or personal property.

The margin is the fixed percentage added to the index rate to determine the interest rate on an adjustable-rate mortgage. For example, if the index is 5% and the margin is 2.5%, the interest rate is 7.5%. The margin is set at loan origination and remains constant for the life of the loan, while the index fluctuates.

A mortgage is a loan used to purchase real estate, where the property itself serves as collateral. The borrower agrees to pay back the loan over a set period, typically 15 or 30 years, with interest. If the borrower fails to make payments, the lender can foreclose on the property. The word mortgage comes from a French term meaning "death pledge."

A mortgage banker is a lender that originates mortgage loans using its own funds and typically sells them to the secondary market (e.g., Fannie Mae, Freddie Mac) after closing. Unlike mortgage brokers, mortgage bankers lend directly and can often make faster decisions because they control the entire lending process in-house. They may also service the loans they originate.

A mortgage broker is a licensed intermediary who shops multiple lenders on behalf of a borrower to find the best loan terms. Brokers do not lend money directly — they connect borrowers with lenders and earn a commission (paid by the lender, the borrower, or both) when a loan closes. Using a broker can give borrowers access to a wider range of loan products than going directly to a single lender.

A mortgage contingency (also called a financing contingency) is a clause in a real estate purchase contract that makes the sale conditional on the buyer obtaining financing. If the buyer cannot secure a mortgage within the specified timeframe, the contingency allows them to back out of the deal and recover their earnest money deposit without penalty.

Mortgage fraud is the intentional misrepresentation or omission of information on a mortgage application to obtain a loan or better terms. Examples include inflating income, misrepresenting the intended use of a property (e.g., claiming owner-occupancy for an investment property), or using a straw buyer. Mortgage fraud is a federal crime carrying serious civil and criminal penalties.

Mortgage Insurance Premium is the insurance required on FHA loans, similar to PMI on conventional loans. MIP includes an upfront premium (typically 1.75% of the loan amount, added to the loan balance) and an annual premium paid monthly. For FHA loans with less than 10% down, MIP is required for the life of the loan.

A mortgage note (also called a promissory note) is the legal document you sign at closing that is your promise to repay the loan. It details the loan amount, interest rate, payment schedule, and consequences of default. The note is separate from the mortgage or deed of trust, which gives the lender a security interest in the property.

A mortgage point is a fee equal to 1% of the loan amount. There are two types: discount points (which lower your interest rate) and origination points (which are a lender processing fee). One discount point typically reduces your rate by 0.25%. The decision to buy points depends on how long you plan to keep the loan — calculate the break-even by dividing the upfront cost by the monthly savings.

A mortgage recast (or re-amortization) is when a borrower makes a large lump-sum payment toward the principal and asks the lender to recalculate (recast) the remaining monthly payments based on the new lower balance and original loan term. The result is a lower monthly payment without refinancing. Not all lenders offer recasting, and a small fee is usually charged.

The mortgage term is the length of time you have to repay the loan, typically expressed in years. Common terms are 15, 20, and 30 years. A shorter term means higher monthly payments but less total interest. A longer term means lower payments but more interest over the life of the loan. The term you choose affects your monthly budget, total cost, and how quickly you build equity.

The mortgagee is the lender in a mortgage transaction — the bank, credit union, or mortgage company that provides the loan funds and receives a security interest in the property as collateral. If the borrower (mortgagor) fails to repay the loan, the mortgagee has the legal right to foreclose on the property and recover the outstanding balance.

The mortgagor is the borrower in a mortgage transaction — the person or entity that receives the loan and pledges the property as collateral. The mortgagor is responsible for making all scheduled payments and complying with the terms of the mortgage agreement. Failure to do so gives the mortgagee (lender) the right to initiate foreclosure.

Negative amortization occurs when the monthly mortgage payment is less than the interest that accrues, causing the loan balance to increase rather than decrease. This can happen with some ARM products. Over time, negative amortization can result in owing significantly more than the original loan amount.

Negative equity — often called being "underwater" or "upside down" — occurs when a homeowner owes more on the mortgage than the property is currently worth. It commonly happens when home values fall after purchase. Negative equity makes it difficult to sell or refinance without bringing cash to the closing table and can lead to default if financial hardship occurs.

A non-conforming loan is a mortgage that does not meet Fannie Mae or Freddie Mac guidelines, either because the loan amount exceeds conforming limits (making it a jumbo loan) or because it does not meet other underwriting standards. Non-conforming loans typically carry higher interest rates because lenders cannot sell them to the GSEs to recover their capital.

A Non-Qualified Mortgage (Non-QM) is a home loan that does not meet the Consumer Financial Protection Bureau's "qualified mortgage" standards. Non-QM loans offer more flexible underwriting — such as using bank statements instead of tax returns for income verification — making them accessible to self-employed borrowers, real estate investors, or those with recent credit events. They typically carry higher rates.

An occupancy requirement is a lender condition that the borrower move into and live in a property as their primary residence within a specified period — typically 60 days of closing. It applies to owner-occupied loan programs (which offer better rates and lower down payments). Violating the occupancy requirement by renting out the property immediately constitutes mortgage fraud.

An origination fee is a charge by the lender for processing a mortgage loan application. It is typically 0.5–1% of the loan amount and compensates the lender for their work in evaluating and preparing the loan. Origination fees are included in the closing costs and appear on the Loan Estimate.

An owner-occupied property is a home in which the borrower lives as their primary residence. Lenders offer the most favorable mortgage rates and terms for owner-occupied properties because borrowers are more likely to maintain and prioritize payments on their primary home. Investment properties and second homes receive less favorable rates due to higher default risk.

A piggyback loan is a second mortgage taken out simultaneously with a first mortgage, typically to avoid paying PMI on a conventional loan. The most common structure is an 80-10-10: an 80% first mortgage, a 10% second mortgage (HELOC or home equity loan), and a 10% down payment. The second loan "piggybacks" on the first, eliminating the need for mortgage insurance.

PITI stands for Principal, Interest, Taxes, and Insurance — the four components of a complete monthly mortgage payment. Lenders use your total PITI payment (sometimes including HOA fees) when calculating your front-end debt-to-income ratio. PITI should not exceed 28% of your gross monthly income under standard lending guidelines.

Private Mortgage Insurance is required by lenders when a borrower makes a down payment of less than 20% of the home's purchase price on a conventional loan. PMI protects the lender if the borrower defaults. It typically costs between 0.3% and 1.5% of the original loan amount per year and can be removed once the borrower reaches 20% equity.

PMI cancellation is the removal of private mortgage insurance from a conventional loan once the borrower has reached sufficient equity. Under the Homeowners Protection Act, borrowers can request PMI cancellation when the loan balance reaches 80% of the original purchase price, and lenders must automatically terminate it at 78% LTV. A new appraisal may be required if cancellation is based on increased home value.

Discount points are fees paid directly to the lender at closing in exchange for a lower interest rate. One point equals 1% of the loan amount. Paying points can reduce your monthly payment and total interest paid over the life of the loan. Points make sense if you plan to stay in the home long enough to recoup the upfront cost through lower monthly payments.

Mortgage pre-approval is a preliminary evaluation by a lender that indicates how much you can borrow. Unlike pre-qualification (which is informal), pre-approval involves a credit check, income verification, and documentation review. A pre-approval letter strengthens your offer when buying a home and gives you a realistic budget to work with.

A preapproval letter is a formal document from a lender stating that a borrower has been conditionally approved for a mortgage up to a specified amount. It confirms the lender has reviewed the borrower's credit, income, and assets. Sellers view preapproval letters as evidence that a buyer is financially qualified and serious, which can strengthen an offer in competitive markets.

Prepaid interest is the mortgage interest that accrues between your closing date and the end of that calendar month, paid upfront at closing. Because mortgage payments are made in arrears (covering the prior month), the first full payment isn't due until the following month. Closing at the end of the month minimizes prepaid interest; closing at the beginning maximizes it.

A prepayment penalty is a fee charged by some lenders if a borrower pays off the loan early, either through extra payments, refinancing, or selling the home within a specified period. Most modern conforming and FHA loans do not have prepayment penalties, but some non-qualified mortgages and older loan products still include them.

Mortgage prequalification is an informal estimate of how much you may be able to borrow, based on self-reported financial information such as income, debts, and assets — without a formal credit check. It gives buyers a general sense of their budget but carries less weight than a full preapproval. Prequalification does not guarantee a loan or a specific interest rate.

The principal is the original amount of money borrowed in a mortgage, not including interest. As you make monthly payments, a portion goes toward reducing the principal balance. The remaining principal is the amount you still owe on your loan at any given time. Early in a mortgage, most of each payment covers interest rather than principal.

The principal balance is the remaining amount of money owed on a mortgage at any given point in time, not including accrued interest. It decreases with each payment as a portion is applied to the original loan amount. Extra payments reduce the principal balance faster, which shortens the loan term and reduces total interest paid.

A private lender is a non-institutional individual or company that provides mortgage loans outside the traditional banking system. Private lenders often offer more flexible qualification criteria but typically charge higher interest rates and fees. Hard money loans from private lenders are common in real estate investing and fix-and-flip projects.

A promissory note is a legally binding written promise to repay a specific sum of money to the lender under defined terms — including the interest rate, payment schedule, and consequences of default. In a mortgage transaction, the promissory note is the borrower's personal obligation to repay the debt, separate from the mortgage itself (which secures the note against the property).

Property taxes are taxes levied by local governments on real estate based on the assessed value of the property. They fund public services like schools, roads, and fire departments. Property tax rates vary significantly by location and are typically paid annually or semiannually, though most mortgage lenders collect them monthly through an escrow account.

A property tax assessment is the process by which a local government determines the taxable value of a property. The assessed value — often a percentage of fair market value — is multiplied by the local tax rate (mill rate) to calculate the annual property tax bill. Property owners who disagree with their assessment can typically appeal through a formal review process.

Qualifying ratios are the guidelines lenders use to determine whether a borrower can afford a mortgage. The front-end ratio compares housing costs to gross income (typically capped at 28%). The back-end ratio compares all monthly debt obligations to gross income (typically capped at 36-43%). Lenders may allow higher ratios for borrowers with strong compensating factors.

A rate cap limits how much an ARM's interest rate can increase. There are three types: an initial cap (limits the first adjustment), a periodic cap (limits subsequent adjustments), and a lifetime cap (limits the total increase over the life of the loan). Caps protect borrowers from extreme payment shock when rates rise rapidly.

A rate lock is a lender's guarantee that it will hold a specific interest rate for a set period (usually 30–60 days) while your loan is being processed. Locking protects you from rate increases during underwriting and closing. If rates drop significantly, some lenders offer a float-down option for an additional fee.

A rate lock extension is an agreement that extends a borrower's locked interest rate beyond its original expiration date when a loan has not yet closed. Extensions are typically needed due to delays in underwriting, appraisal, or closing. Lenders usually charge a fee for extensions — either a flat amount or a percentage of the loan — which may be paid upfront or added to closing costs.

Rate shopping is the practice of applying for mortgage pre-approval or quotes with multiple lenders in a short period to compare interest rates and fees. Credit bureaus typically treat multiple mortgage inquiries made within a 14–45 day window as a single inquiry, minimizing the impact on the borrower's credit score. Shopping at least three to five lenders can result in significant savings over the life of the loan.

A rate-and-term refinance replaces an existing mortgage with a new loan that has a different interest rate, loan term, or both — without taking any additional cash out. The goal is usually to lower the monthly payment, reduce the total interest paid, or switch from an adjustable to a fixed rate. It is the most common type of refinance and generally has stricter LTV limits than a cash-out refinance.

Real Estate Owned refers to properties that a lender — typically a bank or mortgage servicer — has taken back through the foreclosure process and now owns. REO properties are sold by the lender, often at a discount, and are typically sold "as-is." Buyers of REO properties may encounter lengthy negotiation timelines since they are dealing with a financial institution rather than an individual seller.

A recording fee is a charge paid to the local government (typically a county clerk or recorder's office) to officially document the change of ownership and new mortgage in the public record. Recording the deed and mortgage ensures the transaction is legally recognized and that the lender's lien is publicly recorded. Recording fees are included in closing costs.

Refinance closing costs are the fees paid when replacing an existing mortgage with a new loan, typically ranging from 2% to 5% of the loan amount. They include lender origination fees, appraisal, title insurance, recording fees, and prepaid expenses. These costs must be weighed against the expected monthly savings to determine the break-even point of a refinance.

Refinancing involves replacing your existing mortgage with a new one, typically to get a lower interest rate, change the loan term, switch from an ARM to a fixed rate, or access home equity through a cash-out refinance. Refinancing involves closing costs, so borrowers should calculate the break-even point to determine if it makes financial sense.

A rental property mortgage (sometimes called a buy-to-let mortgage) is a loan used to purchase a property the borrower intends to rent out rather than occupy. Lenders typically require 15–25% down, higher credit scores, and charge higher rates than for primary residences. Rental income may be counted toward qualifying income, but lenders typically only credit 75% of it to account for vacancies and expenses.

REO stands for Real Estate Owned, referring to properties that have been foreclosed on and taken back by the lender. After an unsuccessful foreclosure auction, the lender becomes the property owner. REO properties are sold "as-is" and may be available at below-market prices, but they can require significant repairs.

The Real Estate Settlement Procedures Act is a federal law that requires lenders to provide borrowers with timely disclosures about the nature and costs of the settlement (closing) process. RESPA prohibits kickbacks and unearned fees between settlement service providers, limits escrow account cushions, and gives borrowers the right to request a HUD-1 or Closing Disclosure before closing.

A reverse mortgage allows homeowners age 62 or older to borrow against their home equity without making monthly payments. Instead, the loan balance grows over time and is repaid when the homeowner sells the home, moves out permanently, or passes away. The most common type is the Home Equity Conversion Mortgage (HECM), insured by the FHA.

A second home is a property owned in addition to a primary residence that is used personally by the owner for part of the year. Unlike investment properties, second homes are not primarily rented out. Lenders offer better financing terms on second homes than on investment properties, but the borrower must demonstrate they can afford both the primary and secondary mortgage payments simultaneously.

A second mortgage is an additional loan taken out against a property that already has a first mortgage. Because it is subordinate to the first mortgage (paid second in case of default), second mortgages typically carry higher interest rates. Home equity loans and HELOCs are common types of second mortgages.

A seller concession is when the home seller agrees to contribute money toward the buyer's closing costs as part of the purchase agreement. This reduces the cash the buyer needs at closing and can make homeownership more accessible. Concession limits vary by loan type — for example, FHA allows up to 6% of the purchase price, while conventional loans typically cap at 3% for low down payments.

Seller financing (also called owner financing) is when the seller acts as the lender and carries the mortgage for the buyer instead of a traditional financial institution. The buyer makes monthly payments directly to the seller. Terms are negotiable between buyer and seller. Seller financing can be useful when traditional financing is difficult to obtain.

Settlement costs is another term for closing costs — all the fees and expenses paid at the time of closing a real estate transaction. These include lender fees, third-party service fees (appraisal, title, inspection), government fees (recording, transfer tax), and prepaid items (taxes, insurance). Settlement costs typically range from 2% to 5% of the loan amount.

A settlement statement is a document that itemizes all financial transactions in a real estate closing, listing every fee, credit, and disbursement for both the buyer and seller. The Closing Disclosure serves this purpose for most residential purchases since 2015. For transactions not covered by TRID rules (such as reverse mortgages), the HUD-1 Settlement Statement is still used.

A short refinance occurs when a lender agrees to refinance a mortgage for an amount less than what is currently owed, forgiving a portion of the debt. It is typically offered to borrowers who are underwater on their mortgage but are still making payments. A short refinance allows homeowners to stay in the home while reducing their loan balance to a more manageable level.

A short sale occurs when a homeowner sells the property for less than the outstanding mortgage balance, with the lender's approval. The lender agrees to accept the proceeds as full or partial payment of the mortgage. Short sales allow homeowners to avoid foreclosure, though they still negatively impact credit scores, typically less severely than foreclosure.

A subordinate lien is any mortgage or claim against a property that holds a lower priority than the first mortgage. In a foreclosure or sale, the first mortgage is paid first from proceeds, and subordinate lien holders receive payment only if funds remain. Home equity loans and HELOCs are common subordinate liens. Their higher risk means they typically carry higher interest rates.

Subordination is the process of ranking one mortgage lien below another in priority. In a refinance, a second mortgage (like a HELOC) must typically agree to remain subordinate to the new first mortgage. If the second lender refuses to subordinate, the homeowner may need to pay off the second mortgage before refinancing.

A title commitment (also called a title binder) is a preliminary report issued by a title insurance company before closing that outlines the conditions under which it will issue a title insurance policy. It identifies the current property owner, any existing liens or encumbrances, and the requirements that must be met before the insurer will guarantee a clear title to the new buyer.

A title defect is any issue in the chain of ownership that could threaten a buyer's claim to a property. Common defects include unpaid liens, undisclosed heirs, forged documents, errors in public records, or unresolved boundary disputes. Title defects must usually be resolved before a lender will approve a mortgage. Title insurance protects against losses from hidden defects discovered after closing.

Title insurance protects against losses arising from disputes over property ownership. Lender's title insurance (required by the lender) protects the lender's interest. Owner's title insurance (optional but recommended) protects the buyer. Unlike other insurance, title insurance is paid as a one-time premium at closing and covers past events that affect the title.

A title insurance policy is the formal contract issued by a title company after closing that insures the policyholder against financial losses from title defects, liens, or ownership disputes that existed before the policy date. Lender's policies protect the mortgage lender; owner's policies protect the homeowner. Coverage remains in effect for as long as the policyholder owns the property.

A title search is an examination of public records to confirm a property's legal ownership and identify any claims, liens, encumbrances, or defects that could affect the title. A title search is conducted before closing on a home purchase or refinance. Issues found during a title search must typically be resolved before the transaction can close.

A transfer tax is a fee charged by state or local governments when ownership of real property is transferred from one party to another. It is typically calculated as a percentage of the sale price or the mortgage amount. Transfer taxes vary widely by location and may be paid by the buyer, seller, or split between both parties, as specified by local custom or contract.

TRID refers to the mortgage disclosure rules issued by the CFPB in 2015 that integrated the Truth in Lending Act (TILA) and Real Estate Settlement Procedures Act (RESPA) disclosures into two standardized forms: the Loan Estimate (delivered within 3 days of application) and the Closing Disclosure (delivered at least 3 days before closing). TRID makes it easier for borrowers to understand and compare loan offers.

An underwater mortgage (also called an upside-down mortgage) is one where the outstanding loan balance exceeds the current market value of the property. Homeowners with underwater mortgages cannot sell the property without bringing cash to closing and often cannot refinance under standard guidelines. Also called negative equity, it typically results from declining home values after purchase.

Underwriting is the process by which a lender evaluates a borrower's creditworthiness and the risk of lending. The underwriter reviews income, assets, debts, credit history, and the property appraisal to decide whether to approve the mortgage application and under what terms. Underwriting can result in approval, conditional approval, or denial.

Underwriting approval is the formal decision by a mortgage underwriter that a loan application meets the lender's guidelines and the loan is cleared to proceed to closing. Approval may be unconditional (clear to close) or conditional, requiring the borrower to provide additional documentation or explanations before the loan can be finalized. It is one of the final steps before closing.

A USDA loan is a mortgage guaranteed by the U.S. Department of Agriculture for homebuyers in eligible rural and suburban areas. USDA loans require no down payment and offer below-market interest rates. Borrowers must meet income eligibility requirements, typically not exceeding 115% of the area median income. The property must be in an eligible rural area.

The VA Funding Fee is a one-time fee charged on VA loans in lieu of mortgage insurance. It helps sustain the VA loan program for future veterans. The amount ranges from 1.25% to 3.3% of the loan amount, depending on the down payment, loan type, and whether the borrower has used a VA loan before. It can be rolled into the loan or paid upfront. Some veterans with service-connected disabilities are exempt.

A VA loan is a mortgage guaranteed by the U.S. Department of Veterans Affairs, available to eligible veterans, active-duty service members, and surviving spouses. VA loans offer significant benefits including no down payment requirement, no PMI, competitive interest rates, limited closing costs, and no prepayment penalty. A VA funding fee is charged instead of mortgage insurance.

A vacation property (also called a second home) is real estate used for personal enjoyment — such as a beach house or mountain cabin — rather than as a primary residence or rental property. Lenders require a minimum 10% down payment and slightly higher rates than primary residences. To qualify as a second home (not an investment property), the owner must occupy it for a portion of the year.

Verification of assets is the process lenders use to confirm that a borrower has sufficient funds for the down payment, closing costs, and cash reserves. Borrowers typically provide two to three months of bank statements, investment account statements, and retirement account statements. Lenders look for "seasoned" funds — money that has been in the account for at least 60–90 days — to rule out undisclosed borrowing.

Verification of Employment is the process lenders use to confirm a borrower's job status, income, and length of employment. Lenders may contact an employer directly or use a third-party service. Most lenders require at least two years of employment history in the same field, and some will re-verify employment shortly before closing.

A final walk-through is a buyer's last opportunity to inspect a property before closing to ensure it is in the agreed-upon condition, that repairs have been completed, and that no new damage has occurred since the initial inspection. It is typically conducted 24–48 hours before closing and is not the same as a home inspection.

Warehouse lending is a short-term line of credit provided by a bank to a mortgage company (non-bank lender) that allows it to fund new mortgage loans. The mortgage lender uses the warehouse line to originate loans, then repays the line when those loans are sold to investors or GSEs like Fannie Mae. Warehouse lending is the engine that enables non-bank mortgage companies to operate at scale.

A wrap-around mortgage is a form of seller financing where the seller retains their existing mortgage and creates a new, larger loan for the buyer that "wraps around" the existing one. The buyer makes payments to the seller, who continues paying the original lender. These arrangements carry legal and financial risks for both parties.