Glossary

Mortgage terms in plain English.

32 definitions. Independent reference, no rate quotes, no recommendations. Useful when reading guidance articles, Loan Estimates, or Closing Disclosures.

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A

Adjustable-rate mortgage (ARM): A mortgage with an interest rate that can change at set intervals after an initial fixed period. Common shapes are 5/1, 7/1, and 10/1, five, seven, or ten years fixed before the rate starts adjusting annually. ARMs typically start lower than fixed-rate loans but carry rate-change risk over time.
Appraisal: A professional valuation of the property by a licensed appraiser, ordered by the lender. The lender wants to confirm the home is worth at least the loan amount before lending against it. Appraisals are typically required for purchases and most refinances.
APR (Annual Percentage Rate): A standardized number that bundles the interest rate plus most loan-related costs (fees, points, mortgage insurance) into a single annual percentage. APR is more useful than the rate alone when comparing offers, but isn't perfect, different lenders include different fees in their APR calculations. The Loan Estimate is the apples-to-apples document.

C

Cash-out refinance: A new mortgage for more than your current loan balance, with the difference paid out to you at closing. Used to consolidate higher-rate debt, fund renovations, or access equity for other purposes. Underwriting and pricing differ from a rate-and-term refi.
Closing costs: A stack of fees and charges from the lender, title company, county, and a few other parties, paid at closing. Includes lender origination, third-party services (title, escrow, appraisal), recording fees, prepaid interest and the initial escrow deposit. The Loan Estimate breaks this number into categories.
Closing Disclosure (CD): A standardized form that lists the final loan terms, monthly payment, and full closing costs. Federal law requires you to receive it at least three business days before closing so you can compare it to your Loan Estimate and ask questions before signing.
Conforming loan: A mortgage that meets the size and underwriting standards set by Fannie Mae and Freddie Mac, the two government-sponsored entities that buy most U.S. mortgages. Conforming loans tend to have the most competitive pricing. Loans above the conforming limit are non-conforming or jumbo.
Conventional loan: Any mortgage that isn't backed by a government program (FHA, VA, USDA). Most conventional loans are also conforming. The category is large and includes both standard 30-year fixed loans and ARMs, owner-occupied and investment properties, primary and second homes.
Credit score: A number generated from your credit report (Equifax, Experian, TransUnion) that summarizes how you've used credit historically. Mortgage lenders pull a tri-merge report and use the middle of the three FICO scores. Different scoring models (FICO vs VantageScore) and bureaus produce different numbers.

D

Debt-to-income ratio (DTI): Your total monthly debt payments (including the new proposed mortgage) divided by your gross monthly income. Most conventional loan programs cap DTI in the low-to-mid 40s percent. Lower DTI generally translates to better loan options and pricing.
Down payment: The portion of the home's purchase price you pay from your own funds at closing. Typical minimums range from 0% (VA) to 3.5% (FHA) to 5–20% (conventional). The higher your down payment, the smaller your loan and (above 20%) the absence of mortgage insurance.

E

Equity: The home's current value minus the outstanding loan balance. Equity grows as you pay down the loan and as the home appreciates in value. Cash-out refinances and HELOCs let you borrow against equity.
Escrow: A separate account managed by the lender that collects monthly portions of property taxes and homeowner's insurance and pays those bills as they come due. In real-estate transactions, "escrow" also refers to the neutral third-party closing process, the same word means two related but different things.

F

FHA loan: A government-insured loan with lower down-payment minimums (3.5% with qualifying credit) and more flexible credit requirements than conventional loans. Comes with mortgage insurance for the life of the loan in many cases. The property must meet FHA condition standards.
FICO score: A specific scoring model produced by Fair Isaac Corporation. Mortgage lenders use FICO scores from each of the three credit bureaus and then use the middle of the three for underwriting. Different from VantageScore, which is what many free credit-monitoring apps display.
Fixed-rate mortgage: A mortgage with an interest rate that doesn't change over the life of the loan. The 30-year fixed is the most common shape in the U.S. Predictable, but typically priced higher than the initial rate on an ARM.

H

HELOC (Home Equity Line of Credit): A second mortgage that works like a credit card, you can draw funds up to a limit, repay them, and draw again during the draw period. Rates are typically variable. Used for renovations, education, or other large planned expenses.

J

Jumbo loan: A mortgage above the FHFA conforming loan limit for the county. Doesn't sell to Fannie/Freddie, so each lender sets its own underwriting box. Usually requires stronger reserves, higher credit, or more documentation than a conforming loan.

L

Loan Estimate: A federally-required form lenders must provide within three business days of an application. Lays out the rate, monthly payment, closing costs, and other key terms in a standardized format. The cleanest tool for comparing offers between lenders.
Loan-to-value ratio (LTV): The loan amount divided by the home's appraised value (or purchase price, whichever is lower). At 80% LTV or below on a conventional loan, mortgage insurance typically isn't required. Higher LTV usually means higher pricing or required mortgage insurance.

M

Mortgage insurance (PMI / MIP): A monthly charge that protects the lender against default when your down payment is below a threshold. PMI applies to conventional loans with less than 20% down and can typically be removed when you reach 20% equity. MIP applies to FHA loans and follows different rules, sometimes for the life of the loan.

N

NMLS: The Nationwide Multistate Licensing System, the federally-mandated registry of mortgage loan originators and companies. Every licensed mortgage advisor has an NMLS ID; you can look anyone up at NMLS Consumer Access. Juan's NMLS is #328984.

P

PITI: Principal, Interest, Taxes, and Insurance, the four components of a typical monthly mortgage payment for a borrower with an escrow account. Add HOA dues if the property has them; the full "PITI + HOA" is what hits your budget each month.
Pre-approval: A lender's written confirmation that you'd qualify for a specific loan amount, based on documented income, assets, credit, and a hard credit pull. The letter you include with offers. More rigorous than a pre-qualification and what seller's agents take seriously.
Pre-qualification: A rough estimate of what you might qualify for, usually based on information you self-report and sometimes a soft credit check. Useful for early conversations but not the document seller's agents accept as proof of financing.
Principal and interest: Principal is the portion of your monthly payment that pays down the loan balance. Interest is the cost of borrowing. Together they form the "P&I", the loan-only piece of your payment, separate from taxes, insurance, and HOA.

R

Rate lock: A lender's commitment to honor a specific rate for a defined period (typically 30, 45, or 60 days). Locks protect you from rate movement while your loan goes through underwriting. If the lock expires before closing, you may pay an extension fee or re-lock at current rates.
Refinance: Paying off your existing mortgage by taking out a new mortgage on the same property. Common goals include lowering the rate, shortening the term, switching ARM-to-fixed (or vice versa), or pulling cash out against equity. Each goal has different math.
Reserves: Liquid assets remaining in your name after the down payment, closing costs, and any other transaction expenses. Lenders measure reserves in months of housing payments. Showing reserves strengthens a file and reduces risk if your situation changes.

T

Title insurance: A policy that protects the lender (and optionally you, with an owner's policy) against legal claims to the property's title, old liens, undisclosed heirs, recording errors. Paid once at closing rather than monthly.

U

Underwriting: The lender's internal review of your file, confirming income, assets, credit, the property's value, and that the loan fits the program's guidelines. Pre-approval involves a preliminary underwriting review; full underwriting happens after you have a property under contract.

V

VA loan: A loan available to eligible service members, veterans, and certain surviving spouses. No required down payment in many cases, no monthly mortgage insurance, and competitive pricing. The property must be intended as a primary residence.

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