Mortgage Glossary

Understanding mortgage terms shouldn’t feel intimidating. This glossary breaks down the most common home loan and refinance terms into simple, practical explanations—helping you make confident decisions whether you’re buying, refinancing, or investing. Browse by topic to learn how lenders evaluate your loan and what each term means for your financing options.

Loan Types & Programs

Adjustable-Rate Mortgage (ARM)

A loan with an interest rate that can change after an initial fixed period. ARMs typically start with lower rates than fixed loans, but payments can rise or fall depending on the market.

Amortization

The schedule of how your loan is paid down over time. Each monthly payment includes principal and interest, with more principal paid as the loan matures.

Conventional Loan

A mortgage not backed by the government (FHA, VA, USDA). It typically offers competitive rates for borrowers with strong credit and low debt.

FHA Loan

A government-insured loan designed for buyers with limited down payment or credit challenges. FHA loans allow 3.5% down and flexible guidelines.

VA Loan

A zero-down loan for eligible veterans and service members. Backed by the Department of Veterans Affairs, it offers competitive rates and no PMI.

USDA Loan

A 0% down loan for rural and some suburban areas. Income limits apply, but USDA loans provide strong affordability for qualifying borrowers.

Jumbo Loan

A loan amount that exceeds conforming loan limits. Used for higher-priced homes and often requires stronger credit and reserves.

Non-QM Loan

A mortgage that doesn't fit standard qualifying guidelines. Ideal for self-employed borrowers, investors, or buyers with unique income documentation.

DSCR Loan

A loan for real estate investors based on a property’s rental income rather than personal income. Approval depends on the property's cash flow.

Interest Only Loan

A loan allowing you to pay only interest for a set period before full amortizing payments begin. Useful for cash-flow planning or short-term holds.

Credit, Income & Qualification Terms

Debt-to-Income Ratio (DTI)

The percentage of your monthly income that goes toward debt payments. Lower DTI ratios improve your chances of approval.

Loan-to-Value Ratio (LTV)

The percentage of your home's value that you're borrowing. A lower LTV typically results in better rates and fewer requirements.

Credit Score

A three-digit number representing your creditworthiness. Higher scores generally lead to lower interest rates and easier approval.

FHA Loan

A government-insured loan designed for buyers with limited down payment or credit challenges. FHA loans allow 3.5% down and flexible guidelines.

Reserves

Funds you must have left over after closing—often measured in months of mortgage payments. Reserves provide lenders confidence in your ability to manage unexpected changes.

Verification of Employment (VOE)

The process of confirming your job status and income. Lenders may verify electronically or by contacting your employer.

Self-Employed Income

Income verified through tax returns, bank statements, 1099s, or CPA P&L statements. Lenders average income over time to determine qualifying amounts.

Underwriting & Appraisal Terms

Underwriting

The process where lenders evaluate your risk as a borrower. Underwriters review income, assets, credit, and property eligibility.

Conditions

Requirements from the underwriter that must be met before approval. Common conditions include updated pay stubs, letters of explanation, or proof of funds.

Appraisal

A certified evaluation of your home's market value. Lenders use it to ensure the property supports the loan amount.

Appraisal Waiver (PIW)

A certified evaluation of your home's market value. Lenders use it to ensure the property supports the loan amount.

Desk Review

A certified evaluation of your home's market value. Lenders use it to ensure the property supports the loan amount.

Clear to Close (CTC)

A certified evaluation of your home's market value. Lenders use it to ensure the property supports the loan amount.

Rates, Fees & Payment Terms

Underwriting

The process where lenders evaluate your risk as a borrower. Underwriters review income, assets, credit, and property eligibility.

Annual Percentage Rate (APR)

A measurement that combines your interest rate with loan costs (fees, mortgage insurance, etc.). It gives a more complete picture of the loan’s true cost.

Points (Discount Points)

Up-front fees paid to lower your interest rate. One point equals 1% of the loan amount.

Origination Fee

A lender fee for processing and underwriting your loan. Often 0%–1% of the loan amount.

Escrow Account

An account managed by your lender to pay property taxes and homeowners insurance. Part of your monthly payment funds it.

Private Mortgage Insurance (PMI)

Insurance required on most loans with less than 20% down. Protects the lender, but PMI can often be removed later.

MIP (FHA Mortgage Insurance Premium)

Insurance tied to FHA loans. It includes an upfront fee and an annual premium built into your payment.

Prepaid Interest

Interest paid from closing to the end of that month. It ensures your first mortgage payment aligns with the following month’s schedule.

Refinancing Terms

Cash-Out Refinance

A refinance that converts home equity into cash. Useful for debt consolidation, home improvements, or major expenses.

Rate-and-Term Refinance

A refinance that lowers your rate, shortens your term, or both—without taking cash out.

FHA Streamline Refinance

A simplified refinance for current FHA borrowers with no appraisal and minimal documentation.

VA IRRRL (VA Streamline)

A streamlined refinance for existing VA borrowers. No appraisal, no income documentation, and reduced funding fees.

Break-Even Point

How long it takes for your monthly savings to cover refinance costs. Helps determine whether refinancing makes sense.

Net Tangible Benefit

A measurable financial improvement required for FHA and VA streamlines. Ensures the borrower benefits from the refinance.

MIP (FHA Mortgage Insurance Premium)

Insurance tied to FHA loans. It includes an upfront fee and an annual premium built into your payment.

Prepaid Interest

Interest paid from closing to the end of that month. It ensures your first mortgage payment aligns with the following month’s schedule.

Closing Terms

Closing Disclosure (CD)

A final statement of your loan terms and costs. You must receive it at least three days before closing.

Down Payment

The amount you pay upfront when purchasing a home. It reduces your loan amount and affects your rate.

Earnest Money

A deposit showing your commitment to buying. Credited toward your down payment and closing costs.

Title Insurance

Protection against issues with ownership history. Lenders require it, and homeowners can purchase optional coverage too.

Funding

When the lender disburses loan money after signing. Once funded, the transaction is officially complete.

Closing Costs

The fees associated with completing your loan—typically 2–5% of the purchase price or loan amount.

MIP (FHA Mortgage Insurance Premium)

Insurance tied to FHA loans. It includes an upfront fee and an annual premium built into your payment.

Prepaid Interest

Interest paid from closing to the end of that month. It ensures your first mortgage payment aligns with the following month’s schedule.

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