The Full Mortgage Glossary

Showing 108 of 108 terms

Adjustable-Rate Mortgage (ARM)

A mortgage with an interest rate that can change periodically after an initial fixed period, causing your monthly payment to rise or fall based on market rates.

Adjustment Period

On an adjustable-rate mortgage, the length of time between interest rate changes — for example, every six months or once a year.

Amortization

The process of paying off a loan over time through scheduled payments. Early payments go mostly toward interest; later payments go mostly toward principal.

Amortization Schedule

A table showing each loan payment over the life of the loan, broken down into principal and interest, with the remaining balance after each payment.

Annual Percentage Rate (APR)

The yearly cost of a loan expressed as a percentage, including the interest rate plus most lender fees and points. APR gives a fuller picture of loan cost than the interest rate alone.

Appraisal

A professional estimate of a home's market value, performed by a licensed appraiser. Lenders require one to confirm the home is worth the loan amount.

Appraisal Contingency

A clause in a purchase contract allowing the buyer to renegotiate or walk away if the home appraises for less than the agreed purchase price.

Appreciation

An increase in a home's value over time, driven by market conditions, improvements, or neighborhood changes.

Assumable Mortgage

A loan that a buyer can take over from the seller, keeping the existing interest rate and terms. FHA, VA, and USDA loans are often assumable with lender approval.

Balloon Mortgage

A loan with low payments for a set period followed by one large 'balloon' payment of the remaining balance at the end of the term.

Bank Statement Loan

A non-traditional mortgage that qualifies self-employed borrowers based on 12–24 months of bank deposits rather than tax returns or W-2s.

Basis Point

One-hundredth of a percentage point (0.01%). If a rate rises from 6.50% to 6.75%, it increased by 25 basis points.

Biweekly Mortgage

A payment plan where you make half your monthly payment every two weeks — resulting in 26 half-payments (13 full payments) per year, which pays off the loan faster.

Bridge Loan

Short-term financing that lets you buy a new home before selling your current one, using your existing home's equity as leverage.

Buydown

Paying money upfront (often through discount points or a temporary seller-funded arrangement) to reduce your interest rate for part or all of the loan term.

Cash-Out Refinance

Replacing your current mortgage with a larger one and receiving the difference in cash, typically used for renovations, debt consolidation, or large expenses.

Cash Reserves

Money you have left in savings after closing. Some lenders require a certain number of months of mortgage payments in reserve to approve a loan.

Certificate of Eligibility (COE)

A document from the Department of Veterans Affairs confirming a veteran or service member's eligibility for a VA loan.

Closing

The final step in a home purchase, when documents are signed, funds are transferred, and ownership officially passes from seller to buyer. Also called settlement.

Closing Costs

Fees paid at closing to finalize the loan and transfer ownership — including lender charges, appraisal, title insurance, taxes, and prepaid items. Typically 2–5% of the purchase price.

Closing Disclosure (CD)

A five-page document your lender must give you at least three business days before closing, detailing your final loan terms, monthly payment, and closing costs.

Co-Borrower

A person who applies for and shares legal responsibility for a mortgage with you, such as a spouse. Their income and credit are considered in the application.

Collateral

The property that secures a loan. With a mortgage, the home itself is the collateral — the lender can take it through foreclosure if the loan isn't repaid.

Combined Loan-to-Value (CLTV)

The ratio of all loans on a property (first mortgage plus any second mortgages or HELOCs) to the home's value.

Conforming Loan

A conventional loan that meets the size limits and guidelines set by Fannie Mae and Freddie Mac. Limits adjust annually and vary by county.

Construction-to-Permanent Loan

A single loan that funds building a new home and then converts to a standard mortgage once construction is complete — one approval and one closing.

Contingency

A condition written into a purchase contract that must be met for the sale to proceed — common examples include financing, appraisal, and home inspection contingencies.

Conventional Loan

A mortgage not backed by a government agency. Typically requires stronger credit and down payments from 3% to 20% or more.

Credit Score

A three-digit number (typically 300–850) summarizing your credit history. Higher scores generally qualify for better interest rates and loan terms.

Debt-to-Income Ratio (DTI)

The percentage of your gross monthly income that goes toward monthly debt payments, including your future mortgage. Lenders use it to gauge how much you can borrow.

Deed

The legal document that transfers ownership of a property from seller to buyer, recorded with the local government.

Deed of Trust

In some states, a document used instead of a mortgage that involves a third-party trustee who holds the property title until the loan is repaid.

Default

Failing to meet the terms of a loan, most commonly by missing payments. Continued default can lead to foreclosure.

Delinquency

Being behind on loan payments. A loan is typically reported delinquent after 30 days past due.

Discount Points

Optional upfront fees paid to the lender at closing to permanently lower your interest rate. One point equals 1% of the loan amount.

Down Payment

The portion of the purchase price you pay upfront in cash. The remainder is financed through your mortgage.

Down Payment Assistance (DPA)

State, local, or nonprofit programs offering grants or low-interest loans to help eligible buyers cover some or all of their down payment and closing costs.

DSCR Loan

A debt service coverage ratio loan, used by real estate investors, that qualifies based on the property's rental income rather than the borrower's personal income.

Earnest Money Deposit (EMD)

A good-faith deposit a buyer submits with an offer, typically 1–3% of the purchase price, held in escrow and applied to the purchase at closing.

Equity

The portion of your home you truly own — the difference between the home's market value and what you still owe on your mortgage.

Escrow

An account managed by your lender that collects a portion of your property taxes and homeowners insurance with each monthly payment, then pays those bills on your behalf.

Escrow Account (Transaction)

During a purchase, a neutral third-party account that holds earnest money and documents until all conditions of the sale are met.

Fannie Mae (FNMA)

A government-sponsored enterprise that buys conventional mortgages from lenders, setting guidelines most conventional loans follow.

FHA Loan

A mortgage insured by the Federal Housing Administration, designed for buyers with lower credit scores or smaller down payments — as little as 3.5% down with a 580+ credit score.

FHA Mortgage Insurance Premium (MIP)

The mortgage insurance required on FHA loans, including an upfront premium (typically 1.75% of the loan) and an annual premium paid monthly, usually for the life of the loan.

Fixed-Rate Mortgage

A loan with an interest rate that never changes, so your principal and interest payment stays the same for the entire term — most commonly 15 or 30 years.

Flood Insurance

A separate insurance policy required by lenders for homes in designated flood zones, since standard homeowners insurance doesn't cover flood damage.

Foreclosure

The legal process by which a lender takes possession of a home after the borrower fails to make payments, then typically sells it to recover the loan balance.

Freddie Mac (FHLMC)

A government-sponsored enterprise similar to Fannie Mae that buys mortgages from lenders to keep money flowing through the housing market.

Funding Fee

A one-time fee charged on VA loans (typically 1.25%–3.3% of the loan amount) that helps keep the program running. Some veterans are exempt.

Gift Letter

A signed statement confirming that down payment money received from a family member or other approved donor is a gift, not a loan that must be repaid.

Good Faith Estimate (GFE)

An older disclosure form replaced in 2015 by the Loan Estimate. You may still hear the term used informally to mean a cost estimate from a lender.

Gross Monthly Income

Your total income before taxes and deductions — the figure lenders use when calculating your debt-to-income ratio.

HELOC (Home Equity Line of Credit)

A revolving line of credit secured by your home's equity. You can borrow, repay, and borrow again during a set draw period, similar to a credit card.

Home Equity Loan

A second mortgage that gives you a lump sum of cash based on your home's equity, repaid in fixed monthly installments at a fixed rate.

Home Inspection

A professional examination of a home's condition — structure, roof, plumbing, electrical, and more — typically performed after an offer is accepted.

Homeowners Association (HOA)

An organization in some communities that maintains shared spaces and enforces rules, funded by monthly or annual dues paid by homeowners.

Homeowners Insurance

Insurance that covers damage to your home and belongings and provides liability protection. Lenders require it before closing.

HUD (Department of Housing and Urban Development)

The federal agency overseeing national housing policy and programs, including the FHA.

Interest

The cost of borrowing money, expressed as a percentage of the loan amount, paid to the lender as part of each mortgage payment.

Interest-Only Mortgage

A loan where you pay only interest for an initial period (often 5–10 years), keeping payments low at first, before payments jump to include principal.

Interest Rate

The percentage a lender charges to borrow money, applied to the outstanding loan balance. Does not include fees — see APR for the fuller cost.

Joint Tenancy

A form of co-ownership where two or more people hold equal shares of a property with rights of survivorship — if one owner dies, their share passes to the surviving owner(s).

Jumbo Loan

A mortgage that exceeds conforming loan limits, used for higher-priced homes. Typically requires stronger credit, a larger down payment, and more cash reserves.

Lender Credits

Money a lender gives you toward closing costs in exchange for accepting a slightly higher interest rate — the opposite of paying discount points.

Lien

A legal claim against a property as security for a debt. Your mortgage is a lien; it must typically be paid off or resolved before a clear title can transfer.

Loan Estimate (LE)

A standardized three-page form a lender must provide within three business days of your application, outlining estimated rate, payment, and closing costs. Use it to compare lenders.

Loan Officer

The licensed professional who guides you through the mortgage application, collects documents, and helps structure your loan.

Loan Origination Fee

A fee charged by the lender for processing and underwriting your loan, often around 0.5%–1% of the loan amount.

Loan-to-Value Ratio (LTV)

The loan amount divided by the home's value, expressed as a percentage. A $280,000 loan on a $350,000 home is 80% LTV. Lower LTV generally means better terms.

Lock-In (Rate Lock)

A lender's guarantee to hold a specific interest rate for a set period (commonly 30–60 days) while your loan is processed, protecting you if rates rise.

Mortgage

A loan used to purchase or refinance real estate, secured by the property itself, repaid over a set term through scheduled payments of principal and interest.

Mortgage Broker

A licensed middleman who shops your loan application to multiple lenders to find fitting rates and programs, rather than lending money directly.

Mortgage Insurance

Insurance that protects the lender if you default. Required on conventional loans with less than 20% down (PMI) and on all FHA loans (MIP).

Mortgage Note

The legal document you sign at closing promising to repay the loan according to its terms — amount, rate, payment schedule, and consequences of default.

Mortgage Servicer

The company that collects your monthly payments, manages your escrow account, and handles customer service. It may differ from the lender that originated your loan.

Negative Amortization

When your monthly payment doesn't cover the interest due, so the unpaid interest is added to your loan balance — meaning you owe more over time, not less.

Non-Conforming Loan

Any loan that doesn't meet Fannie Mae and Freddie Mac guidelines — including jumbo loans and non-QM products like bank statement or DSCR loans.

Non-QM Loan

A 'non-qualified mortgage' for borrowers whose finances don't fit standard guidelines, offering flexible qualification at typically higher rates and down payments.

Origination

The entire process of creating a new mortgage — application, documentation, underwriting, and approval.

PITI

Principal, Interest, Taxes, and Insurance — the four components that make up a typical total monthly housing payment.

PMI (Private Mortgage Insurance)

Insurance required on most conventional loans when your down payment is under 20%. It protects the lender and can usually be cancelled once you reach 20% equity.

Points

Prepaid interest or fees expressed as a percentage of the loan amount. Discount points lower your rate; origination points are lender charges. One point equals 1% of the loan.

Preapproval

A lender's verified commitment — based on your credit, income, and assets — stating how much you're approved to borrow. Far stronger than prequalification when making offers.

Prepayment Penalty

A fee some loans charge if you pay off the mortgage early. Rare on standard home loans today, but worth checking before signing.

Prequalification

A quick, informal estimate of what you might be able to borrow, based on self-reported numbers without verification. A starting point, not a commitment.

Principal

The amount of money you borrow, excluding interest. Each payment chips away at the principal, building equity.

Property Taxes

Taxes assessed by local governments based on your home's value, typically collected monthly through your escrow account and paid annually or semi-annually.

Rate-and-Term Refinance

Replacing your existing mortgage with a new one to get a lower interest rate or change the loan term, without taking cash out.

Rate Cap

On an adjustable-rate mortgage, a limit on how much the interest rate can change at each adjustment and over the life of the loan.

Real Estate Agent (Realtor)

A licensed professional who represents buyers or sellers in a home transaction. 'Realtor' specifically means an agent who belongs to the National Association of Realtors.

Recording Fee

A government charge, paid at closing, to officially record the deed and mortgage in public land records.

Refinance

Replacing your current mortgage with a new loan — typically to lower your rate, shorten your term, switch loan types, or tap equity.

RESPA (Real Estate Settlement Procedures Act)

A federal law requiring lenders to disclose loan costs clearly and prohibiting kickbacks, protecting consumers during the settlement process.

Reverse Mortgage

A loan for homeowners 62+ that converts home equity into cash, with no monthly payments required — the balance is repaid when the home is sold or the owner passes away.

Second Mortgage

Any additional loan secured by a home that already has a first mortgage — including home equity loans and HELOCs. Paid off after the first mortgage if the home is sold.

Settlement Statement

The document itemizing all funds paid and received at closing by buyer and seller. The Closing Disclosure serves this role for most loans today.

Short Sale

Selling a home for less than the remaining mortgage balance, with the lender's approval, to avoid foreclosure.

Survey

A professional drawing confirming a property's legal boundaries, structures, and any encroachments. Sometimes required by lenders or title companies.

Title

Legal ownership of a property, including the right to use and transfer it. A 'clear title' means no outstanding liens or ownership disputes.

Title Insurance

A one-time policy purchased at closing that protects against financial loss from past title defects — unknown liens, recording errors, or ownership disputes. Lenders require a lender's policy; an owner's policy protects you.

Title Search

An examination of public records to confirm the seller legally owns the property and to uncover any liens, judgments, or claims before closing.

Transfer Taxes

State or local taxes charged when property ownership changes hands, paid at closing. Who pays varies by location and negotiation.

Truth in Lending Act (TILA)

A federal law requiring lenders to clearly disclose loan terms and costs — including the APR — so borrowers can compare offers.

Underwriting

The lender's detailed review of your credit, income, assets, and the property to decide whether to approve the loan and on what terms.

USDA Loan

A mortgage backed by the U.S. Department of Agriculture for buyers in eligible rural and suburban areas, offering 0% down for qualifying borrowers who meet income limits.

VA Loan

A mortgage backed by the Department of Veterans Affairs for eligible veterans, active-duty service members, and some surviving spouses — typically with no down payment and no monthly mortgage insurance.

Walk-Through (Final)

The buyer's last visit to the home, usually within 24 hours of closing, to confirm its condition matches the contract and agreed repairs were completed.

Looking for the quick version? Head back to the Financing page for the six most essential terms.