MBA CRU key terms

A loan secured by real property, where the lender can take the home if the borrower fails to repay. The property itself serves as collateral for the debt.

An asset pledged to secure a loan. In residential lending, the home and land secure the mortgage, allowing the lender to recover funds if the borrower stops paying.

The amount of money borrowed, separate from interest and fees. As payments are made, the outstanding principal balance declines, building the borrower's equity over time.

The percentage a lender charges on the outstanding loan balance, expressed annually. It determines the cost of borrowing and shapes the monthly payment amount.

The schedule by which a loan is paid down over time through regular payments split between principal and interest. Early payments are mostly interest; later payments are mostly principal.

The loan amount divided by the property's appraised value or purchase price, whichever is lower. Higher ratios signal greater lender risk and often trigger mortgage insurance requirements.

The total of all loans secured by the property divided by its value. It captures subordinate liens such as second mortgages or home equity lines that a first-lien LTV alone would miss.

The portion of a purchase price the borrower pays from their own funds rather than financing. Larger down payments reduce LTV and lender risk.

The difference between a property's market value and the total debt secured by it. Equity grows through principal repayment and appreciation, and it protects lenders against loss.

A numerical summary of a borrower's credit history, commonly from FICO or VantageScore models. Underwriters use it to assess repayment likelihood and to set pricing and eligibility tiers.

A record from a credit bureau detailing a borrower's accounts, balances, payment history, inquiries, and public records. Underwriters review it to verify debts and spot derogatory items.

A negative entry on a credit report such as a late payment, collection account, charge-off, judgment, or bankruptcy. Underwriters weigh its recency, severity, and any explanation provided.

A borrower's total monthly debt obligations divided by gross monthly income. It measures capacity to repay and is central to loan approval and program eligibility.

The share of gross monthly income consumed by housing costs, including principal, interest, taxes, insurance, and association dues. Often called the front-end ratio.

Principal, interest, property taxes, and hazard insurance, the four components of a typical monthly housing payment. Underwriters compare PITI plus other debts against income.

The money left after subtracting housing costs, other debts, and estimated living expenses from take-home pay. Some programs use it instead of or alongside DTI to judge affordability.

The process of documenting a borrower's earnings through pay stubs, tax returns, bank statements, or employer confirmation. It ensures the income used for qualification is stable and reliable.

Earnings expected to continue at a similar level for the foreseeable future. Underwriters examine employment history, income type, and consistency to decide how much income can be counted.

Earnings that fluctuate, such as overtime, bonuses, commissions, or seasonal wages. Underwriters typically average it over a documented period and require a history of receipt.

A borrower whose income comes from owning a business or independent contracting rather than an employer. Underwriting relies on business and personal tax returns and may require additional documentation.

The process of confirming a borrower's savings, investments, and other holdings used for down payment, closing costs, or reserves. Funds must be documented as sourced and seasoned.

Liquid funds remaining after closing that a borrower must show to cover future payments. Reserve requirements vary by program and rise with risk factors such as higher LTV.

Cash or an investment that can be converted to cash quickly with little loss of value, such as a checking account or money market fund. Retirement accounts may count at a discount.

Money given to a borrower for down payment or closing costs by an eligible donor, usually a relative. Lenders require a gift letter and evidence the funds were transferred.

An independent, licensed opinion of a property's market value based on comparable sales and property condition. It protects the lender by confirming the home supports the loan amount.

A recently sold property similar in location, size, condition, and features, used to support an appraised value. Appraisers adjust for differences between the subject and each comparable.

A lender or automated system decision to accept a property's value without a full appraisal, usually based on data and risk models. It speeds processing but is not available for every loan.

The most probable price a property would bring in an open, competitive market under fair conditions. It is the reference point for LTV and for evaluating a purchase price.

The legal right of ownership in a property and the record of that ownership. Lenders require a clear title so the mortgage lien can be enforced without competing claims.

A policy protecting the lender, and optionally the owner, against losses from title defects such as undiscovered liens, fraud, or recording errors. It is typically purchased at closing.

A review of public records to confirm the seller's ownership and to identify liens, easements, or encumbrances affecting the property. Problems found must be resolved before closing.

A legal claim against a property that secures a debt or obligation. A mortgage is a voluntary lien; tax liens and judgments are involuntary and can jeopardize the lender's position.

A claim recorded after another lien, giving it lower priority for repayment in a foreclosure. Second mortgages and home equity lines are common examples.

Insurance that protects the lender, not the borrower, against loss when a loan exceeds a set LTV threshold. It is usually required above 80 percent LTV and adds to the monthly payment.

A lender-held account that collects portions of property taxes and insurance with each payment and disburses them when due. It protects the lender from unpaid tax or insurance bills.

Fees and charges paid at loan settlement, such as origination, appraisal, title, and recording costs. Underwriters confirm the borrower has funds to cover them.

The cost of credit expressed as a yearly rate, including the interest rate plus certain finance charges. It allows borrowers to compare loan offers on a common basis.

The lender's process of evaluating a borrower's credit, capacity, and collateral to decide whether a loan is acceptable and on what terms. It balances risk against program rules.

Software that evaluates loan data against risk models and program guidelines to produce an approval, referral, or denial recommendation. Human underwriters review and document the final decision.

A borrower's failure to meet loan obligations, most often by missing payments. It can lead to loss mitigation, foreclosure, or both, and it is the risk underwriting aims to minimize.

The legal process by which a lender takes and sells a property after a borrower defaults, using the home as collateral. Proceeds repay the debt, with any surplus going to the borrower.

Options a servicer offers to help a struggling borrower avoid foreclosure, such as modification, forbearance, or repayment plans. The goal is to keep the loan performing when possible.

A written statement from a borrower clarifying a credit inquiry, derogatory item, gap in employment, or unusual deposit. Underwriters use it to document the reasoning behind a decision.