Mortgage Glossary
Your guide to understanding mortgage terminology
Adjustable-Rate Mortgage (ARM)
A mortgage with an interest rate that can change periodically based on changes in a specified index.
Amortization
The gradual repayment of a mortgage loan by making regular payments of principal and interest over a set period of time.
Annual Percentage Rate (APR)
The yearly cost of a loan including interest, fees, and other charges, expressed as a percentage.
Appraisal
A professional opinion of a property's market value, performed by a licensed appraiser.
Appreciation
An increase in the value of a property over time.
Bridge Loan
A short-term loan used to bridge the gap between buying a new home and selling your current one.
Buydown
A financing technique where the borrower pays additional points upfront to reduce the interest rate.
Closing Costs
Fees and expenses paid at the closing of a real estate transaction, including loan origination fees, title insurance, and appraisal fees.
Conventional Loan
A mortgage that is not insured or guaranteed by the federal government. Conventional loans typically require a higher credit score and a larger down payment (usually 5-20%) compared to FHA or VA loans, and may require private mortgage insurance (PMI) if your down payment is less than 20%.
Credit Score
A numerical expression of a person's creditworthiness, typically ranging from 300 to 850.
Cash-Out Refinance
A refinancing option where you borrow more than you owe and receive the difference in cash.
Debt-to-Income Ratio (DTI)
The percentage of your monthly gross income that goes toward paying debts.
Down Payment
The portion of the home's purchase price that you pay upfront in cash.
Due Diligence
The process of investigating and verifying the details of a property before completing a purchase.
Equity
The difference between your home's current market value and the amount you still owe on your mortgage.
Escrow
An account held by a third party on behalf of two parties in a transaction, or funds held to pay property taxes and insurance.
Estimated Closing Costs
The projected total of all fees and expenses associated with closing a mortgage loan.
FHA Loan
A mortgage insured by the Federal Housing Administration, designed for lower-income or first-time homebuyers. FHA loans allow down payments as low as 3.5% and accept lower credit scores than conventional loans. Borrowers must pay FHA mortgage insurance premiums (MIP), which protect the lender in case of default.
Fixed-Rate Mortgage
A mortgage with an interest rate that remains constant throughout the life of the loan.
Foreclosure
A legal process where a lender takes possession of a property due to the borrower's failure to make payments.
Good Faith Estimate (GFE)
Now replaced by the Loan Estimate, this was an estimate of settlement charges a borrower would pay.
Gross Income
Total income before taxes and other deductions.
Home Equity Line of Credit (HELOC)
A revolving line of credit secured by your home, allowing you to borrow as needed up to a credit limit.
Home Inspection
A thorough examination of a property's physical condition, typically performed before purchase.
Homeowners Insurance
Insurance that covers damage to your home and personal property, and liability for injuries that occur on your property.
Interest Rate
The percentage charged on the principal loan amount, typically expressed as an annual rate.
Interest-Only Loan
A loan where you pay only the interest for a specified period, with no principal reduction.
Jumbo Loan
A mortgage that exceeds the conforming loan limits set by Fannie Mae and Freddie Mac.
Loan Estimate
A standardized form that details the estimated costs and terms of a mortgage loan.
Loan-to-Value Ratio (LTV)
The ratio of the loan amount to the appraised value or purchase price of the property, whichever is less.
Lien
A legal claim against a property that must be satisfied when the property is sold.
Mortgage Insurance
Insurance that protects the lender if the borrower defaults on the loan, typically required when down payment is less than 20%.
Mortgage Pre-Approval
A lender's written commitment to lend you a specific amount based on a thorough review of your finances.
Mortgage Pre-Qualification
An estimate of how much you can borrow based on preliminary financial information.
NMLS
Nationwide Mortgage Licensing System - a database that tracks mortgage professionals and their licensing.
Note
The legal document that obligates you to repay the mortgage loan according to specified terms.
Origination Fee
A fee charged by the lender for processing a new loan application.
Owner's Title Insurance
Insurance that protects the buyer against title defects or claims against the property.
PITI
Principal, Interest, Taxes, and Insurance - the four components of a monthly mortgage payment.
Points
Prepaid interest on a mortgage, where one point equals 1% of the loan amount.
Pre-Payment Penalty
A fee charged if you pay off your mortgage early, though most modern loans don't have this.
Principal
The amount of money borrowed or the amount still owed on a loan, excluding interest.
Private Mortgage Insurance (PMI)
Insurance required by lenders when a borrower makes a down payment of less than 20%.
Rate Lock
A guarantee that your interest rate won't change between loan approval and closing.
Refinance
Replacing an existing mortgage with a new one, typically to get better terms or lower payments.
RESPA
Real Estate Settlement Procedures Act - federal law that requires lenders to provide disclosures about the mortgage process.
Title
Legal ownership of a property and the right to use it.
Title Search
An examination of public records to confirm a property's legal ownership and find any claims or liens.
Truth in Lending Act (TILA)
Federal law requiring lenders to disclose credit terms and costs clearly.
Underwriting
The process of evaluating a loan application to determine the risk of lending to the borrower.
USDA Loan
A zero-down-payment mortgage for rural and some suburban homebuyers, backed by the U.S. Department of Agriculture.
VA Loan
A mortgage guaranteed by the Department of Veterans Affairs for eligible veterans, active duty service members, and surviving spouses. VA loans offer zero down payment, no mortgage insurance requirement, and are guaranteed by the VA, which reduces lender risk. They also typically offer competitive interest rates and no prepayment penalties.
Variable Rate
An interest rate that fluctuates based on market conditions.