VA Home Loan Glossary

Home near Keesler Air Force Base, Miss. (U.S. Air Force photo)
Home near Keesler Air Force Base, Miss. (U.S. Air Force photo)


Acceleration Clause
Provision in a mortgage that gives the lender the right to demand payment of the entire outstanding balance when the first monthly payment is missed.

A home seller accepts a buyer's offer. After a written agreement to the prices and conditions of the sale, a Purchase and Sale Agreement is drawn up and signed by both parties.

Unit of land which measures 4,840 square yards or 43,560 square feet.

Ad Valorem
Latin phrase that means "according to value." Ad valorem taxes are taxes are those assessed according to the value of the home.

Adjustable-Rate Mortgage (ARM)
Repayment plan for a mortgage that permits the lender to adjust the interest rate periodically on the basis of changes in a specified index.

Repayment of a mortgage in gradual installments.

Amortization Schedule
Timetable for payment of a mortgage showing the amount of each payment applied to interest and principal as well as the remaining balance.

Annual Percentage Rate (APR)
Total yearly cost of a mortgage stated as a percentage of the loan amount. This includes items such as the base interest rate, primary mortgage insurance and loan origination fee (points).

Professional evaluation of a property's market value.

Increase in the value of a property due to changes in market conditions or other causes.

Assessed Value or Assessment
Valuation placed upon property by a public tax assessor for purposes of taxation.

Assumable Mortgage
Mortgage that can be taken over ("assumed') by the buyer when a home is sold.

The transfer of the seller's existing mortgage to the buyer.


Back-Up Position
If a seller receives two offers at the same time, he or she has the right to accept either one. If your offer is not accepted, you can request that it remain on file as a second offer, or a back-up position. You can continue to search for another home in this situation.

Preliminary agreement, secured by the payment of earnest money, under which a buyer offers to purchase real estate.

Bundle of Rights
Rights of property ownership, or the right to use, lease, sell, enjoy or encumber.

Paying a lender to lower the interest rate.


Provision of an adjustable-rate mortgage limiting how much the interest rate or mortgage payments may increase or decrease.

Cash Reserve
Requirement of some lenders that buyers have sufficient cash remaining after closing to make the first two monthly mortgage payments.

Certificate of Eligibility
Document provided by the VA which confirms your eligibility for a home loan. To obtain this certificate, you will need a VA Form 26-1880 and a copy of your DD Form 214. For more details, see the Eligibility section.

Certificate of Reasonable Value
States the estimated value of your property and is prepared by an appraiser.

Personal property, including cars, motor homes, jewelry, etc.

Clear Title
A title that is free of liens or legal questions as to ownership of property.

Meeting at which a sale of a property is finalized. This includes the buyer signing the mortgage documents and paying closing costs. Also called "settlement."

Closing Costs
Expenses (over and above the price of the property) incurred by buyers and sellers in transferring ownership of a property. Also called settlement costs.

Commitment Letter
Formal offer by a lender stating the terms under which it agrees to lend money to a home buyer.

A form of property ownership in which the homeowner holds title to an individual dwelling unit, an undivided interest in common areas of a multi-unit project and sometimes the exclusive use of certain limited common areas.

Consumer Credit Counseling Plan
Offered to those who have adverse credit data.

Contingency Clauses
Narrow the scope of the Purchase and Sale Agreement. For example, if your offer to purchase a new property depends on your ability to sell your present home, you must notify your real estate agent so that appropriate forms can be filled out for the seller.

Convertible ARM
An adjustable-rate mortgage that can be converted to a fixed-rate mortgage under specified conditions.

A type of multiple ownership in which the residents of a multi-unit housing complex own shares in the corporation that owns the property, giving each resident the right to occupy a specific apartment or unit.

Counter Offer
Seller's response to a buyer's offer.

A clause in a mortgage that obligates or restricts the borrower, and that if violated, can result in foreclosure.

Covenants, Conditions and Restrictions (CC&R)
Official restrictions on a property (i.e., fence height, type of livestock permitted) to protect its value and prevent undesirable conditions.

Credit Report
Report of an individual's credit history prepared by a credit bureau and used by a lender in determining a loan applicant's creditworthiness.

Credit Standing
This rating depends on whether you pay all your bills and loans in a timely manner. The better your standing, the better your chances of getting a loan.


DD Form 214
Certificate of Release or Discharge From Active Duty. If you were discharged from active duty after January 1, 1950, a copy of this certificate should be included with your Certificate of Eligibility when applying for loan eligibility. If you do not have your DD Form 214, you should contact the National Personnel Records Center.

Debt-to-Income Ratio
The ratio of total monthly debt payments (housing expenses, installment debts, etc.) to gross monthly income. Generally, the VA requires a ratio at or below 41 percent to guarantee a home loan.

Legal document conveying title to a property.

Deed of Trust
Document used in some states instead of a mortgage; title is conveyed to a trustee rather than to the borrower.

Failure to make a mortgage payment on a timely basis, or comply with other requirements of a mortgage.

Situation in which a payment is overdue but not yet in default.

Department of Housing and Urban Development (HUD)
Helps out in the house appraisal and mortgage process. Visit the department Website.

Deposit. See Earnest Money.

A decline in the value of property; the opposite of appreciation.

Discount Points
Charge added by the lender which ranges from 1% to 6% of the loan amount. Each point is 1% of the loan amount. For example, on a $100,000 loan with four points, you will prepay $4,000. Discount points are added in order to qualify you for the lowest possible interest rate.

Down Payment
The portion of the home purchase price which the buyer pays in cash and does not finance with a mortgage.

Due-On-Sale Clause
Provision in a mortgage allowing the lender to demand repayment in full if the borrower sells the property securing the mortgage.


Earnest Money
Deposit made by the potential home buyer to show that he or she is serious about buying the house.

Provision giving persons other than the owner access to or over a property.

Employment Verification
To qualify for a loan, the veteran borrower usually needs to present proof of two years' employment.

A veteran's basic entitlement is $36,000 (or up to $89,912 for certain loans over $144,000). This entitlement is the amount the VA actually guarantees to the lender. Most lenders will generally loan up to 4 times the available entitlement without requiring a down payment.

In simple terms the VA entitlement is like having the VA make your 25% down payment for you.

Earnest Money given to a neutral third party authorized to hold funds pending the conclusion of a sale.

Escrow Company
A third party to a real estate transaction, an escrow company draws up final documents and explains them to the seller and buyers. They are responsible for obtaining final signatures and recording the transaction. This service may be provided by a bank, an attorney, a real estate agent or a title company.

Equal Credit Opportunity Act (ECOA)
Federal law which forbids discrimination in lending practices.


Fair Housing Act (FHA)
Federal Legislation which makes it illegal to discriminate against a buyer because of his or her sex, race, age, color or creed.

Federal Housing Authority (FHA)
Under the auspieces of the Department of Housing and Urban Development.

Fee Simple
Outright ownership, or the most complete type of ownership.

Legal process of repossessing property when a buyer fails to meet the terms of the mortgage.

Funding Fee
Percentage of total home loan paid to the VA at time of loan closing.


Gift Letter
If your relatives can contribute additional funds in the event you don't have enough money to close a sale, they will need to send this to the lender, stating that the donor does not expect to be repaid. Donated funds must be verified before the home sale is closed.

Graduated Payment Mortgage (GPM)
Repayment plan for a mortgage in which low initial payments gradually rise to a level payment.

Legal term referring to the buyer in a real estate transaction.

Growing Equity Mortgage (GEM)
Repayment plan for a mortgage in which the size of payments gradually increases, with all the increase applied to capital.


Hazard Insurance
Insurance coverage compensating for physical damage to a property from fire, wind, vandalism or other hazards.

Homeowner's Insurance
An insurance policy that combines personal liability coverage and hazard insurance coverage for a dwelling and its contents.

Homeowner's Warranty
Insurance that covers repairs to specified parts of a house for a specific period of time. It is provided by the builder or property seller as a condition of the sale.

HUD-1 Form
Settlement Statement which presents an itemized breakdown of all fees incurred in obtaining a home loan.


Fee charged for borrowing money.

Interest Rate Cap
Provision of an adjustable-rate mortgage limiting how much interest rates may increase or decrease per adjustment period or over the life of a mortgage. See also Lifetime Cap.

Interest Rate Reduction Refinancing Loan Program 
Adjusts an adjustable-rate mortgage to a fixed-rate loan.


Joint Tenancy
A form of co-ownership giving each tenant equal interest and equal rights in the property, including the right of survivorship.


Late Charge
The penalty a borrower must pay when a payment is made after the due date.

Lease-Purchase Mortgage Loan
An alternative Fannie Mae financing option that allows low
and moderate-income home buyers to lease a home from nonprofit organization with an option to buy. Each month's rent payments consists of PITI payments on the first mortgage, plus an extra amount that is earmarked for deposit to a savings account in which money for a down payment will accumulate.

Lender Appraisal Processing Program
Special VA program allows qualified lenders to conduct their own home appraisals.

A legal claim against a property that must be paid off when the property is sold.

Lifetime Cap
A provision of an adjustable-rate mortgage that limits the highest rate that can occur over the life of the loan.

Loan Approval
A loan is considered approved after the lender has reviewed all the documentation and is satisfied that the buyer can meet the terms of a mortgage.

Loan Servicing
Collection of mortgage payments from borrowers and related responsibilities of a loan servicer.

Loan Guaranty Entitlement
The amount of money a veteran borrower who has previously used a VA loan guaranty can use for a new loan.

Loan-To-Value Percentage (LTV)
The relationship between the unpaid principal balance of the mortgage and the appraised value (or sales price if it is lower) of the property.

Written agreement guaranteeing the homebuyer a specified interest rate provided the loan is closed within a set period of time. The lock-in also usually specifies the number of points to be paid at closing.


Market Value
A property's value based on recent sales in the neighborhood. It is usually different from the assessed value.

Legal document that pledges a property to the lender as security for payment of a debt.

Mortgage Banker
Company that originates mortgages exclusively for resale in the secondary market.

Mortgage Broker
Individual or company that for a fee acts as an intermediary between borrowers and lenders.

Mortgage Insurance Premium (MIP)
Fee paid by a borrower to the Federal Housing Authority (FHA) or a private insurer for mortgage insurance.

Mortgage Margin
The set percentage the lender adds to the index value to determine the interest rate of an adjustable-rate mortgage.

Mortgage Note
Legal document obligating a borrower to repay a loan at a stated interest rate during a specified period of time.

Mortgage Interest Rate
The rate of interest in effect for the monthly payment due.

The lender in a mortgage agreement.

The borrower in a mortgage agreement.


National Personnel Records Center 
Submit a Standard Form 180 to this center if you are in need of a DD Form 214.

Negative Amortization
A gradual increase in the mortgage debt that occurs when the monthly payment is not large enough to cover the entire principal and interest due. The amount of the shortfall is added to the unpaid principal balance to create "negative" amortization.

Notice of Default
A formal written notice to a borrower that a default has occurred and that legal action may be taken.


Origination Fee
A fee paid to a lender for processing a loan application; it is stated as a percentage of the mortgage amount.

Owner Financing
A property purchase transaction in which the property seller provides all or part of the financing.


Payment Cap
A provision of some adjustable-rate mortgages limiting the amount by which a borrower's payments may increase regardless of any interest rate increase; this may result in negative amortization.

Principal, Interest, Taxes, and Insurance, the components of a monthly mortgage payment.

Planned Unit Developments (PUDs)
A project or subdivision that consists of common property that is owned and maintained by an owners' association for the benefit and use of the individual PUD unit owners.

A one-time charge by the lender to increase the yield of the loan; a point is 1 percent of the amount of the mortgage.

Legal document authorizing one person to act on behalf of another. Specific power-of-attorney authorizes another person to act only under certain circumstances, such as signing the closing documents in a real estate transaction.

Prepayment Penalty
Fee that may be charged to a borrower who pays off a loan before it is due. Please note that the VA will not approve mortgages with provisions for prepayment penalties.

Pre-Purchase Counseling
Offered by the Department of Housing and Urban Development (HUD) for prospective home buyers and lenders. For more information, call HUD at (800) 217-6970, or visit the department's Website.

The process of determining how much money a prospective homebuyer will be eligible to borrow before a loan is applied for.

The amount borrowed or remaining unpaid; also, that part of the monthly payment that reduces the outstanding balance of a mortgage.

Private Mortgage Insurance (PMI)
Insurance provided by non-government insurers that protect lenders against loss if a borrower defaults. Fannie Mae generally requires private mortgage insurance for loans with loan-to-value (LTV) percentages greater than 80 percent.

Promissory Note
An unconditional promise to pay a certain sum of money on demand, or at a specific date stipulated on the note.

Property Taxes
Collected by local governments and included in your monthly payments, these are based on the assessed value of real property.

Purchase and Sale Agreement
A written contract signed by the buyer and seller stating the terms and conditions under which a property will be sold.

Purchase Contract
To be drawn up with the seller or selling agent when you have decided on a home to purchase. The contract should be conditioned on approval of a VA-guaranteed loan.


Qualifying Ratios
Guidelines applied by lenders to determine how large a loan to grant a homebuyer.


Rate Lock
See Lock-In.

Real Estate Sales Professional
A person licensed to negotiate and transact the sale of real estate on behalf of the property owner.

Real Estate Settlement Procedures Act (RESPA)
Department of Housing and Urban Development consumer protection statue which protects homebuyers during the purchase and loan application processes by requiring lenders to give borrowers advance notice of closing costs.

Real Property
Includes land, building, attachments and improvements.

The process of paying off one loan with the proceeds from a new loan using the same property as security.

Rent and Mortgage Payment History
Records of your housing expense and rental payments are crucial in meeting credit requirements for a loan.

Rent With Option to Buy
See Lease-Purchase Mortgage Loan.

Rescission Agreement
Document signed by two parties when a contract between them is terminated.

Residual Income
Your income minus expenses such as monthly payments, proposed housing expenses and taxes.


Second Mortgage
A mortgage that has a lien position subordinate to the first mortgage.

Secondary Mortgage Market
The buying and selling of existing mortgages.

Seller Concessions
Anything of value given up by the seller to the buyer in a real estate transaction.

An agreement in which a property owner provides financing, often in combination with an assumed mortgage.

See Closing.

Settlement Sheet
The computation of costs payable at closing that determines the seller's net proceeds and the buyer's net payment.

A drawing or map showing the precise legal boundaries a property, the location of improvements, easements, rights of way encroachments, and other physical features.

Standard Form 180
Request Pertaining to Military Records. Submit this form to the National Personnel Records Center if you need a DD Form 214 for eligibility purposes.

Statement of Service
Provided by your military unit, this document identifies you and lists your dates of entry on your current active duty period as well as how long you have served in the military.


Tenancy by Entirety
A type of joint ownership of property that provides right of survivorship and is available only to a husband and wife.

Tenancy in Common
A type of joint ownership in a property without right of survivorship.

A legal document stating a person's right to or ownership of a property.

Title Company
A company that specializes in examining and insuring titles to real estate.

Title Insurance
Insurance to protect the lender (lender's policy) or buyer (owner's policy) against loss arising from disputes over ownership of property.

Title Search
A check of the title records to ensure that the seller is the legal owner of the property and that there are no liens or other claims outstanding.

Transfer Tax
State or local tax payable when title passes from one owner to another.

Traditional Fixed Payment
Repayment plan for a mortgage in which there is a constant principal and interest.

Truth-in-Lending Act
Federal legislation assuring that everyone who is extended commercial credit is given meaningful disclosures with respect to the cost of the credit being extended.


Lender employee responsible for approving or denying a loan based on examination of the loan application and related documents.


VA Eligibility Centers
Submit your VA Form 26-1880 and DD Form 214 here to obtain a Certificate of Eligibility.

VA Form 26-1880
Request for a Certificate of Eligibility for Home Loan Benefits. Submit this request form along with your DD Form 214 to a VA Eligbility Center in order to obtain your Certificate of Eligibility.

Variable Rate
A varible-rate agreement, as distinguished from a fixed-rate agreement, calls for an interest rate that may fluctuate over the life of the loan. The rate is often tied to an index that reflects changes in market rates of interest. A fluctuation in the rate causes changes in either the payments or the length of the loan term. Limits are often placed on the degree to which the interest rate or the payments can vary.

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