Mortgage Glossary

Adjustable-Rate Mortgage (ARM)

A mortgage whose interest rate can change after an initial period. Later adjustments generally follow a stated market index plus the loan’s margin, subject to the loan’s caps.

Amortization

The scheduled process of paying a loan down over time. Early payments on a typical fixed-payment mortgage contain more interest; later payments contain more principal.

Annual Percentage Rate (APR)

A standardized annualized measure that combines the interest rate with certain loan costs under applicable disclosure rules. It can help compare offers, but it is not the same as the rate and does not by itself equal total lifetime cost.

Interest rate describes the price of borrowing principal. APR includes the rate plus certain costs.

Appraisal

An independent opinion of a property’s value prepared for the lending transaction. It helps a lender evaluate the property as collateral; it is not a detailed evaluation of every system or defect.

An appraisal addresses value and lender requirements. A home inspection helps a buyer understand physical condition.

Assets

Things of financial value a borrower owns or controls, such as eligible funds in checking, savings, retirement, or investment accounts. A lender may verify source, ownership, access, and required reserves.

Bank Statement Loan

A financing approach that may evaluate eligible bank-deposit history rather than relying only on traditional income documents. Rules, expense treatment, documentation, and qualification vary by program.

Borrower

A person legally obligated to repay a loan. Ownership and occupancy are related questions, but being a borrower specifically describes responsibility for the debt.

Bridge Loan

Short-term financing designed to bridge a timing gap, often while someone buys a new property before selling another. Carrying costs, repayment strategy, equity, and sale timing are central risks.

Cash-Out Refinance

A refinance that replaces an existing mortgage with a larger loan and provides eligible proceeds from available equity. The new rate, term, payment, costs, and reduced equity all matter.

Cash to Close

The final amount a buyer must provide at closing after the down payment, closing costs, prepaids, escrow funding, deposits, credits, and other adjustments are combined.

Down payment is one component of the transaction. Cash to close is the final settlement calculation.

Closing

The stage when final documents are signed, required funds are handled, and the transaction is completed according to local settlement and recording procedures. Funding and possession timing can vary.

Closing Costs

Upfront expenses connected with the mortgage and real-estate transaction, such as applicable lender charges, appraisal, title or settlement services, recording, and other required or selected services.

Closing Disclosure

The standardized document that shows final loan terms, projected payments, and closing costs for covered mortgages. Review it against the earlier Loan Estimate and ask about changes before signing.

A Loan Estimate is an early disclosure. A Closing Disclosure presents final transaction figures.

Combined Loan-to-Value (CLTV)

The total balances of loans secured by a property divided by its estimated value. A first mortgage and a proposed home equity line both count in the combined amount.

Co-borrower

Another person who applies for and is legally responsible for the mortgage. Their income, assets, credit, and debts may be evaluated under the applicable program rules.

Conforming Loan

A conventional mortgage structured to meet applicable Fannie Mae or Freddie Mac purchase requirements, including current loan limits and underwriting rules.

Conventional Loan

A mortgage that is not insured or guaranteed by FHA, VA, or USDA. Conventional loans can be conforming or non-conforming and may require private mortgage insurance depending on the structure.

Credit Report

A record assembled by a consumer-reporting company showing reported credit accounts, payment history, balances, inquiries, and certain public information. Reports can contain errors and should be reviewed carefully.

Credit Score

A number produced by a scoring model from information in a credit report. Mortgage scoring models and the score used for a loan may differ from scores shown by consumer apps.

Debt Service Coverage Ratio (DSCR)

A comparison of qualifying property income with applicable property debt obligations. Investor programs may calculate it differently, so there is no universal qualifying threshold.

Debt-to-Income Ratio (DTI)

A comparison of qualifying monthly debt obligations with qualifying gross monthly income. What counts, and what ratio is acceptable, depends on the full file and program.

Discount Points

An upfront charge associated with obtaining a particular interest rate. Paying points can reduce a rate, but whether that saves money depends on the pricing, costs, and how long the loan is kept.

Down Payment

The part of a home’s purchase price not financed by the primary mortgage. It is different from closing costs, prepaids, reserves, and the final cash-to-close amount.

Down payment reduces the amount financed. Cash to close combines the complete settlement calculation.

Down Payment Assistance (DPA)

Help from an eligible program that may take the form of a grant, forgivable or deferred loan, repayable second mortgage, or another structure. Funding, geography, income, occupancy, and repayment terms vary.

Earnest Money

A deposit made under a purchase contract to demonstrate the buyer’s intent. Its handling, refundability, and application at closing depend on the contract and transaction—not on a universal mortgage rule.

Equity

The difference between a property’s current value and debts secured by it. Equity is not automatically cash; accessing it generally requires a sale or eligible financing.

Escrow

In a mortgage payment, an escrow account holds money collected for future property-tax and insurance bills. In a real-estate transaction, escrow can also describe a neutral settlement arrangement that holds money or documents until conditions are met.

FHA Loan

A mortgage made by an approved lender and insured by the Federal Housing Administration. FHA requirements include mortgage insurance and property standards in addition to borrower qualification.

Financed Costs

Loan-related costs added to the loan balance instead of paid in cash at closing. Financing reduces cash due then, but the costs remain and can increase interest paid over time.

Fixed-Rate Mortgage

A mortgage whose principal-and-interest rate does not change during the loan term. The total payment can still change when taxes, insurance, mortgage insurance, or other housing costs change.

Flood Insurance

Coverage for qualifying flood losses, generally separate from standard homeowners insurance. Property location, lender requirements, flood-zone information, and the selected policy affect whether it is needed and what it covers.

Funding

The point when the lender provides loan proceeds for an approved closing. Signing documents and funding are related but may not occur at the same moment.

Gift Funds

Money provided by an eligible donor for an allowed transaction purpose. The donor, documentation, transfer, required contribution, and repayment restrictions depend on program rules.

Home Equity Line of Credit (HELOC)

A revolving line of credit secured by home equity, usually with a draw period followed by repayment. Rates are commonly variable, and the home secures the debt.

A HELOC is reusable credit up to an available limit. A home-equity loan generally advances one lump sum with an installment schedule.

Home Inspection

A buyer-arranged evaluation of a home’s visible condition and major systems by a qualified inspector. It serves a different purpose from the lender’s appraisal.

An inspection focuses on condition. An appraisal primarily supports value and collateral review.

Home Possible®

Freddie Mac’s affordable conventional mortgage offering for eligible borrowers and properties. Income, occupancy, education, mortgage insurance, and other requirements apply.

HomeReady®

Fannie Mae’s affordable conventional mortgage offering for eligible borrowers and properties. Income, occupancy, education, mortgage insurance, and other requirements apply.

Homeowners Association (HOA)

An organization that may govern a community or condominium and collect dues. Review current dues, rules, budgets, assessments, and the limits of any master insurance policy.

Homeowners Insurance

Property coverage selected for a specific home and policy. Premiums and coverage reflect factors such as dwelling characteristics, location, limits, deductibles, claims history, and insurer underwriting.

House Hacking

A strategy in which an owner occupies part of a property and rents another lawful, eligible unit, room, or portion. Rent treatment, occupancy, management, vacancy, and local rules require careful review.

Interest

The borrowing cost charged on the outstanding principal. On a typical amortizing mortgage, the interest portion changes as the balance is paid down.

Interest Rate

The percentage rate used to calculate interest on the loan balance. It does not include every fee or determine the complete monthly housing payment by itself.

Interest rate prices the borrowed principal. APR adds certain costs; total payment can also include taxes, insurance, and other items.

Investment Property

A property owned primarily for rental income, appreciation, or another investment purpose rather than as the borrower’s primary home. Financing and reserve requirements can differ materially.

A primary residence is the home the borrower genuinely intends to occupy as their main home. An investment property is not owner-occupied as a primary residence.

Individual Taxpayer Identification Number (ITIN)

A federal tax-processing number issued by the IRS to certain people who are not eligible for a Social Security number. Having an ITIN alone does not establish mortgage eligibility or immigration status.

Jumbo Loan

A mortgage amount above the applicable conforming loan limit. Credit, income, asset, reserve, appraisal, and property requirements vary by lender and scenario.

Lender Credit

A credit from the lender that offsets eligible upfront costs, commonly in exchange for different loan pricing or a higher interest rate. Compare both the immediate savings and longer-term cost.

Lien

A legal claim against property that secures a debt or obligation. A mortgage or deed of trust creates a voluntary lien; taxes, judgments, or other obligations can create additional liens.

Loan Estimate

A standardized early disclosure for covered mortgages showing estimated terms, payments, and closing costs. It is not final approval and its figures can change within applicable rules.

The Loan Estimate is the early comparison document; the Closing Disclosure shows final transaction figures.

Loan-to-Value Ratio (LTV)

A comparison of the loan amount with the property value used for the transaction. The relevant value and calculation can depend on whether the loan is a purchase or refinance.

Manufactured Home

A home built to the federal manufactured-housing construction standard and identified by HUD labels. Land, title, foundation, age, condition, and program eligibility must be reviewed.

Mortgage Insurance

Coverage that protects the lender or program against certain borrower-default losses. It does not replace homeowners insurance and does not protect the borrower’s belongings or repair the home.

Mortgage Insurance Premium (MIP)

FHA mortgage-insurance charges, which can include an upfront premium and an annual premium generally collected monthly. The applicable duration and amount depend on current FHA rules and the loan.

MIP applies to FHA-insured mortgages. PMI is private insurance associated with certain conventional loans.

Non-Qualified Mortgage (Non-QM)

A category of mortgages that do not meet the federal Qualified Mortgage definition. Non-QM is not one program and does not mean no underwriting, no documentation, or guaranteed approval.

Non-U.S. Citizen Borrower

A broad description that can include people with different residency, visa, documentation, and eligibility circumstances. Program and lender requirements vary; citizenship alone does not describe the complete file.

Origination

The process of creating a mortgage, including application, disclosures, processing, underwriting, and closing. Origination charges are lender charges shown in the applicable loan disclosures.

Payment Break-Even

The estimated time for monthly payment savings from a refinance to equal the transaction costs included in the comparison. It is a simple payment measure, not a lifetime borrowing-cost comparison.

PITI

Shorthand for principal, interest, property taxes, and homeowners insurance. A complete housing payment may also include mortgage insurance, program fees, HOA dues, or other obligations.

Points

An amount expressed as a percentage of the loan amount. On disclosures, discount points generally refer to an upfront charge tied to a particular rate; ask what each quoted point represents.

Preapproval

A lender’s conditional assessment based on the information and review completed at that time. Lenders use the term differently, and it is not final approval or a guarantee of financing.

Prequalification and preapproval do not have universally identical review standards. Ask what was verified and what conditions remain.

Prepaid Items

Amounts paid in advance at closing, such as applicable prepaid interest, an initial homeowners-insurance premium, mortgage insurance, or property taxes. They are not all lender fees.

Prequalification

An early estimate or assessment based on the information reviewed by a lender. The depth of review varies, and the term is not a promise of final approval.

Lenders use prequalification and preapproval differently. Ask whether credit, income, assets, and documents were reviewed and what remains conditional.

Primary Residence

The home a borrower genuinely intends to occupy as their main residence. Occupancy affects eligible programs, pricing, down-payment structures, and underwriting.

A primary residence is owner-occupied as the main home; an investment property is held primarily for investment rather than primary occupancy.

Principal

The amount borrowed and still owed, excluding interest and other charges. Part of each scheduled amortizing payment generally reduces principal.

Principal and Interest (P&I)

The part of a mortgage payment that repays the loan balance and interest. It excludes property taxes, insurance, HOA dues, and other housing costs.

Private Mortgage Insurance (PMI)

Private insurance commonly required for certain conventional loans with higher loan-to-value ratios. Cost and cancellation rules depend on the loan, coverage, law, and servicer process.

PMI is associated with conventional financing. FHA uses its own mortgage insurance premium, or MIP.

Property Taxes

Local taxes tied to property ownership. Mortgage calculators can provide planning estimates, but actual assessments, exemptions, rates, timing, and bills are property-specific.

Rate Lock

A lender agreement to hold specified mortgage pricing for a stated period, subject to its terms and an unchanged qualifying scenario. Expiration, extensions, property changes, and loan changes can matter.

Recording

The official filing of deeds, liens, or other documents in local public records. Recording procedures and timing affect when ownership and security instruments appear in the record.

Refinance

Replacing an existing mortgage with a new loan. Compare the new payment and rate with closing costs, break-even timing, term reset, equity, and total borrowing objectives.

Renovation Loan

Financing that can combine eligible property acquisition or refinancing with approved improvement costs. Program, contractor, appraisal, draw, contingency, and project requirements vary.

Reserves

Eligible funds documented beyond the amount needed to close, often measured as months of specified housing obligations. Required assets and reserve calculations vary by program and property.

Seller Concessions

Value provided by a seller toward eligible buyer costs or other permitted items. Limits and treatment depend on the loan program, occupancy, contribution type, and transaction.

Servicer

The company that manages the mortgage after closing by receiving payments, administering escrow when applicable, providing statements, and handling account questions. It may differ from the original lender.

Title

The legal ownership interest in real property. A title review searches records for ownership, liens, restrictions, and other matters relevant to transfer and lender security.

Total Monthly Payment

The complete recurring housing payment, which can include principal and interest plus taxes, insurance, mortgage insurance or program fees, and sometimes other obligations. It is broader than the interest rate or principal-and-interest payment.

Underwriting

The lender’s review of the borrower, property, loan structure, and supporting documentation against applicable requirements. Conditions may be requested before final approval and closing.

USDA Loan

A USDA Rural Development home-loan program for eligible borrowers and properties. Guaranteed loans are generally made through approved lenders and involve income, occupancy, geography, and program requirements.

VA Entitlement

The amount of VA guaranty associated with an eligible borrower’s home-loan benefit. Available entitlement can be affected by prior VA loan use and whether that entitlement has been restored.

VA Funding Fee

A one-time charge on many VA-backed or VA direct loans that supports the program. Amount and exemption depend on current rules and the borrower’s situation; it may be paid at closing or financed when permitted.

VA Loan

A mortgage made by a private lender and backed by the Department of Veterans Affairs for an eligible Veteran, service member, or qualifying survivor. Eligibility, entitlement, occupancy, appraisal, and underwriting requirements apply.