Mortgage Terminology

A

Adjustable-Rate Mortgage (ARM)
A mortgage with an interest rate that may change periodically after an initial fixed-rate period.

Amortization
The process of paying off a loan over time through scheduled payments of principal and interest.

Annual Percentage Rate (APR)
A measure of the cost of borrowing that includes the interest rate plus certain loan costs, expressed as an annual percentage.

Appraisal
An independent professional opinion of a property's value used by the lender as part of the loan approval process.

Assets
Money or property you own that may be considered when qualifying for a mortgage, such as checking and savings accounts, investments, and retirement funds.

Automated Underwriting System (AUS)
A computerized system used to evaluate loan information and provide an initial underwriting recommendation.

B

Borrower
A person who applies for and is legally responsible for repaying a mortgage loan.

C

Cash to Close
The estimated amount of money you'll need to bring to closing after accounting for your down payment, closing costs, deposits, credits, and other adjustments.

Closing
The final stage of the mortgage transaction when required documents are signed and the loan and property transaction are completed.

Closing Costs
Expenses associated with obtaining the mortgage and completing the transaction, which may include lender fees, appraisal, title services, recording fees, taxes, insurance, and other charges.

Closing Disclosure (CD)
A document that provides the final details of your mortgage, including the loan terms, projected payments, and closing costs.

Conforming Loan
A conventional mortgage that meets applicable loan limits and other requirements established for purchase by Fannie Mae or Freddie Mac.

Conventional Loan
A mortgage that is not insured or guaranteed by a federal government agency.

Credit Report
A record of your credit accounts and payment history that lenders use as part of evaluating your mortgage application.

Credit Score
A numerical representation of information in your credit report that helps lenders evaluate credit risk.

D

Debt-to-Income Ratio (DTI)
The percentage of your gross monthly income used to pay monthly debts. Lenders use DTI as one factor when determining how much you may qualify to borrow.

Discount Points
Optional upfront fees that may be paid at closing in exchange for a lower mortgage interest rate.

Down Payment
The portion of the purchase price you pay from your own funds or other eligible sources rather than financing with the mortgage.

E

Earnest Money Deposit (EMD)
Money provided with or shortly after an accepted purchase offer to demonstrate the buyer's good faith. It is generally credited toward the amount due at closing.

Equity
The difference between the current value of your property and the amount you owe on loans secured by the property.

Escrow Account
An account maintained by the mortgage servicer to collect funds for certain property expenses, typically property taxes and homeowners insurance, as part of your monthly mortgage payment.

F

FHA Loan
A mortgage insured by the Federal Housing Administration that may offer lower down-payment requirements and more flexible qualifying guidelines than some conventional loans.

Fixed-Rate Mortgage
A mortgage with an interest rate that remains the same for the life of the loan.

G

Gift Funds
Money given to a borrower by an eligible donor that may be used toward a down payment, closing costs, or other permitted expenses, subject to the loan program's requirements.

H

Homeowners Insurance
Insurance that protects the home and generally covers certain losses or damage to the property. Lenders typically require adequate coverage while a mortgage is outstanding.

I

Interest
The cost charged by a lender for borrowing money.

Interest Rate
The percentage rate used to calculate the interest charged on the outstanding loan balance.

J

Jumbo Loan
A mortgage with a loan amount above the applicable conforming loan limit. Jumbo loans may have different qualification requirements than conforming loans.

L

Lender
The financial institution or mortgage company that provides the funds for a mortgage loan.

Loan Estimate (LE)
A standardized disclosure that provides important information about the proposed mortgage, including estimated interest rate, monthly payment, and closing costs.

Loan-to-Value Ratio (LTV)
A comparison of the loan amount to the property's value, expressed as a percentage.

M

Mortgage Insurance
Insurance that protects the lender if a borrower defaults on the loan. Depending on the loan program, mortgage insurance may be required based on the down payment, loan-to-value ratio, or other program requirements.

Mortgage Insurance Premium (MIP)
Mortgage insurance associated with FHA loans. Depending on the loan, it may include an upfront premium and an annual premium paid through the monthly mortgage payment.

Private Mortgage Insurance (PMI)
Mortgage insurance that may be required on certain conventional loans, typically when the borrower makes a smaller down payment.

N

Non-QM Loan
A Non-Qualified Mortgage that uses alternative qualifying guidelines and may be helpful for borrowers whose income, assets, or financial circumstances do not fit traditional mortgage requirements.

O

Origination
The process of creating a mortgage loan, beginning with the application and continuing through processing, underwriting, approval, and closing.

P

PITI
An abbreviation for Principal, Interest, Taxes, and Insurance—four common components used when calculating a homeowner's monthly housing expense.

Points
Fees calculated as a percentage of the loan amount. One point generally equals 1% of the loan amount. Points may be associated with loan pricing, origination, or reducing the interest rate.

Preapproval
A more detailed evaluation of a borrower's finances and credit to determine potential mortgage eligibility, subject to final underwriting, property approval, and other requirements.

Prequalification
A preliminary review used to estimate the loan amount or purchase price a borrower may qualify for based on information provided. It is not a commitment to lend.

Principal
The amount of money borrowed, excluding interest and other loan charges.

R

Rate Lock
An agreement that locks a mortgage interest rate for a specified period, subject to the terms and conditions of the lock.

Refinance
Replacing an existing mortgage with a new loan, often to change the interest rate, loan term, monthly payment, loan type, or access available home equity.

Reserves
Funds remaining after closing that may be required by certain loan programs. Reserves are commonly measured by the number of months of housing payments the available funds could cover.

T

Title
Legal ownership of a property. A title search is typically performed during a real estate transaction to identify ownership interests, liens, or other issues affecting the property.

Title Insurance
Insurance that protects against certain problems with a property's title. Lender's title insurance protects the lender, while an owner's title policy protects the homeowner, subject to the policy's terms and coverage.

U

Underwriting
The lender's review of the borrower's credit, income, assets, debts, property, and other information to determine whether the loan meets applicable lending guidelines.

USDA Loan
A mortgage program backed by the U.S. Department of Agriculture for eligible borrowers purchasing qualifying properties in designated areas.

V

VA Loan
A mortgage available to eligible veterans, active-duty service members, certain members of the National Guard and Reserves, and some surviving spouses. VA loans are guaranteed by the U.S. Department of Veterans Affairs and may offer financing with no down payment for qualified borrowers.

Don't See the Term You're Looking For?

Mortgage terminology can vary depending on the loan program. If you come across a term, abbreviation, or item on your loan documents that you don't understand, I'm happy to explain it.

ASK GIDGET