MORTGAGE GLOSSARY
Mortgage terms, explained simply
62 words you’ll hear between pre-approval and closing day — from APR to underwriting — in plain English.
A–Z
Find a term
62 terms shown
A
- Adjustable-Rate Mortgage (ARM)
- A loan whose interest rate is fixed for an initial period (for example 5, 7 or 10 years) and then adjusts at set intervals based on a market index plus a margin, within caps written into the loan.
- Amortization
- The schedule that spreads each payment between interest and principal. Early payments are mostly interest; over time, more of each payment reduces the balance.Amortization calculator
- Annual Percentage Rate (APR)
- The yearly cost of a loan including the interest rate plus certain fees, expressed as a percentage. It is useful for comparing offers because two loans with the same rate can have different APRs.
- Appraisal
- An independent licensed appraiser’s opinion of a home’s market value. Lenders use it to confirm the property supports the loan amount.
- Assets & reserves
- Money you have in checking, savings, investment or retirement accounts. Reserves are funds left over after closing, often measured in months of mortgage payments, that show you can handle surprises.
B
- Bank statement loan
- A non-QM loan for self-employed borrowers that qualifies income from 12–24 months of personal or business bank deposits instead of tax returns.Bank statement program
- Bridge loan
- Short-term financing that taps equity in your current home so you can buy the next one before the first sells. It is repaid when the current home sells.Bridge home loan
- Buydown (2-1)
- A temporary rate reduction paid up front: the rate is 2% lower in year one and 1% lower in year two, then returns to the note rate. Often funded by the seller or builder.Seller-paid buydown
C
- Cash to close
- The total amount you bring to closing: down payment plus closing costs and prepaid items, minus deposits and any credits. It appears on the Loan Estimate and Closing Disclosure.
- Cash-out refinance
- Replacing your current mortgage with a larger loan and receiving the difference in cash, commonly used for renovations or paying off higher-interest debt.Cash-out refinance
- Closing costs
- Fees for completing the loan and purchase, such as lender, appraisal, title, escrow and recording fees, plus prepaid taxes and insurance.
- Closing Disclosure
- The final five-page statement of your loan terms and closing costs. You must receive it at least three business days before closing.
- Conforming loan limit
- The maximum loan size Fannie Mae and Freddie Mac will buy, set each year by the FHFA and higher in some counties. Loans above it are jumbo loans — check the current limit for your county.Jumbo home loan
- Construction loan (one-time close)
- Financing for building a home that combines the construction loan and the permanent mortgage into a single application and closing.Construction home loan
- Contingency
- A condition in a purchase contract — such as financing, appraisal or inspection — that must be met for the sale to go forward, and that lets the buyer exit if it isn’t.
- Conventional loan
- A mortgage not insured by a government agency. Many follow Fannie Mae or Freddie Mac guidelines; down payments can start as low as 3% for qualified buyers.Fixed-rate mortgage
- Credit score
- A number (commonly FICO) summarising your credit history. It affects which programs you qualify for and the rate and mortgage insurance you’re offered.
D
- Debt Service Coverage Ratio (DSCR)
- For investment property, the rent divided by the property’s monthly payment (principal, interest, taxes, insurance and HOA). A DSCR loan qualifies mainly on this ratio rather than personal income.DSCR home loan DSCR calculator
- Debt-to-income ratio (DTI)
- Your monthly debt payments, including the new housing payment, divided by your gross monthly income. Lenders use it to judge affordability.Affordability calculator
- Discount points
- Optional upfront fees paid to lower your interest rate. One point equals 1% of the loan amount.
- Down payment
- The part of the purchase price you pay up front rather than borrow. Required amounts vary by program, from 0% for eligible VA and USDA loans upward.Low down payment options
- Down payment assistance (DPA)
- Grants or second loans from state, local or nonprofit programs that help cover a down payment or closing costs, usually with income and purchase-price limits.First-time home buyer
E
- Earnest money
- A good-faith deposit made when your offer is accepted, held by escrow and credited toward your down payment or closing costs at closing.
- Equity
- The difference between your home’s value and what you owe on it. Equity grows as you pay down the loan and as the home gains value.
- Escrow
- A neutral third party that holds funds and documents until a sale closes. After closing, an escrow (impound) account can also collect monthly amounts to pay property taxes and insurance.
- Escrow waiver
- An option on some loans to pay property taxes and homeowners insurance yourself instead of through an escrow account, which can reduce the cash needed at closing.
F
- FHA loan
- A mortgage insured by the Federal Housing Administration with flexible credit guidelines and down payments from 3.5% for qualified borrowers. It carries mortgage insurance (MIP).FHA home loan
- Fixed-rate mortgage
- A loan whose interest rate stays the same for the whole term, commonly 15 or 30 years, so principal and interest never change.Fixed-rate mortgage
G
- Gift funds
- Money given by a relative or other allowed donor toward your down payment or closing costs, documented with a gift letter and a paper trail.
H
- Home Equity Line of Credit (HELOC)
- A revolving line of credit secured by your home that you can draw on, repay and draw again, while keeping your first mortgage in place.HELOC
- Homeowners association (HOA) dues
- Monthly or annual fees paid to a community association for shared amenities and upkeep. Lenders count them in your housing payment.
- Homeowners insurance (hazard insurance)
- Insurance that covers damage to the home and liability. Lenders require it, and it is part of your monthly housing cost.
I
- ITIN loan
- A home loan for borrowers who use an Individual Taxpayer Identification Number instead of a Social Security number, with documentation requirements set by the program.
J
- Jumbo loan
- A mortgage larger than the conforming loan limit. Jumbo loans usually have stricter credit, down payment and reserve requirements.Jumbo home loan
L
- Loan Estimate
- A standard three-page form you receive within three business days of applying, showing the estimated rate, payment and closing costs so you can compare lenders.
- Loan-to-value ratio (LTV)
- The loan amount divided by the home’s value or price. A lower LTV (a bigger down payment or more equity) can mean better pricing and no mortgage insurance.
- Lock & Shop
- A rate lock you can set before you have an accepted offer, so your rate is protected while you house-hunt for a set period.
M
- Mortgage broker
- A licensed professional who compares loan programs from many wholesale lenders on your behalf, rather than offering only one bank’s products.
N
- NMLS ID
- The unique number the Nationwide Multistate Licensing System assigns to every licensed mortgage company and loan officer. You can verify any ID free at NMLS Consumer Access.
- Non-QM loan
- A loan outside the standard “qualified mortgage” rules, such as bank statement, DSCR or asset-based loans, designed for borrowers whose income doesn’t fit traditional documentation.Bank statement program
O
- Origination fee
- A lender or broker charge for processing and underwriting a loan, shown in section A of the Loan Estimate.
P
- PITI
- Principal, interest, taxes and insurance — the four main parts of a monthly mortgage payment. HOA dues and mortgage insurance are often added on top.Monthly payment calculator
- Pre-approval
- A lender’s written conditional approval after reviewing your credit, income and assets. It shows sellers you’re a serious, qualified buyer; it is not a final commitment to lend.
- Pre-qualification
- An early estimate of what you might borrow based on information you provide, often without a hard credit check. Less detailed than a pre-approval.
- Prepaid items
- Costs paid at closing in advance, such as the first year of homeowners insurance, daily interest until the first payment, and initial escrow deposits.
- Principal
- The amount you borrowed, or the part of the balance still owed, not counting interest.
- Private Mortgage Insurance (PMI)
- Insurance usually required on conventional loans with less than 20% down. It can typically be cancelled once you reach enough equity.
- Property taxes
- Annual taxes charged by the county based on the assessed value of the home, usually paid monthly through escrow.
R
- Rate lock
- A lender’s guarantee of a specific interest rate for a set period, commonly 30–90 days, while your loan is processed. Extensions may be possible for a fee.
- Rate-and-term refinance
- Replacing your mortgage to change the interest rate, the loan term or both, without taking cash out.Refinance Refinance calculator
- Recording
- Filing the deed and mortgage (deed of trust) with the county so the transfer and the lender’s lien become part of the public record — the final step of closing.
- Rehab / renovation loan
- A mortgage that combines the purchase or refinance with the cost of repairs or improvements in one loan.Rehab loan
- Reverse mortgage (HECM)
- A loan for homeowners 62 and older that converts home equity into cash, a line of credit or monthly payments, with no required monthly mortgage payment while they live in the home and keep up taxes, insurance and upkeep.Reverse mortgage
S
- Seller concessions
- Money the seller agrees to put toward the buyer’s closing costs or a rate buydown. Each loan program limits how much is allowed.Seller-paid buydown
T
- Title insurance
- Insurance that protects the lender (and optionally the owner) against problems with ownership history, such as unknown liens or errors in public records.
U
- Underwriting
- The lender’s detailed review of your credit, income, assets and the property to make the final decision on the loan.
- USDA loan
- A loan backed by the U.S. Department of Agriculture for eligible rural and some suburban areas, with no down payment for qualified buyers and household income limits.USDA loan
V
- VA funding fee
- A one-time fee on most VA loans that helps fund the program. It can be financed into the loan, and some veterans — such as those receiving VA disability compensation — are exempt.VA home loan
- VA IRRRL (streamline refinance)
- The VA Interest Rate Reduction Refinance Loan, a simplified refinance from one VA loan to another, usually to lower the rate.VA refinance options VA refinance calculator
- VA loan
- A mortgage guaranteed by the U.S. Department of Veterans Affairs for eligible veterans, service members and some surviving spouses, often with no down payment and no monthly mortgage insurance.VA home loan VA purchase calculator
W
- Wholesale lender
- A lender that offers loans through independent mortgage brokers rather than directly to the public, often at wholesale pricing.
Rather talk it through?
Jeremy will explain your options with real numbers — no jargon, no pressure, no obligation.