A
Adjustable-Rate Mortgage (ARM)
A mortgage with an interest rate that changes periodically based on market conditions. ARMs typically start with a lower fixed rate for an initial period (3, 5, 7, or 10 years) before adjusting annually.
35 Terms Defined
Mortgage
Glossary
Master the language of home financing. Every term you need to know, explained clearly and concisely.
Loan Types
13 terms
B
Bank Statement Loan
A non-QM loan that uses bank statements (typically 12-24 months) instead of tax returns to verify income. Popular among self-employed borrowers and business owners.
C
Conforming Loan
A mortgage that meets the guidelines set by Fannie Mae and Freddie Mac, including loan limits, credit requirements, and documentation standards. Conforming loans typically offer better rates than non-conforming loans.
C
Conventional Loan
A mortgage not insured or guaranteed by the federal government. Conventional loans can be conforming (meeting Fannie/Freddie guidelines) or non-conforming (jumbo loans).
D
DSCR Loan
Debt Service Coverage Ratio loan - an investment property loan qualified based on the property's rental income rather than the borrower's personal income. DSCR is calculated by dividing rental income by mortgage payment.
F
FHA Loan
A mortgage insured by the Federal Housing Administration. FHA loans feature lower down payments (3.5%), more flexible credit requirements, and are popular with first-time homebuyers.
F
Fixed-Rate Mortgage
A mortgage with an interest rate that remains constant for the entire loan term, typically 15 or 30 years. Provides predictable monthly payments and protection against rising rates.
H
HELOC
Home Equity Line of Credit - a revolving credit line secured by your home's equity. Works like a credit card with a draw period (typically 10 years) followed by a repayment period.
J
Jumbo Loan
A mortgage that exceeds conforming loan limits set by Fannie Mae and Freddie Mac. In 2024, the limit is $766,550 in most areas and up to $1,149,825 in high-cost areas.
N
Non-QM Loan
Non-Qualified Mortgage - loans that do not meet Consumer Financial Protection Bureau (CFPB) standards for qualified mortgages. Includes bank statement loans, DSCR loans, and asset-based loans.
R
Refinance
Replacing an existing mortgage with a new loan, typically to get a lower interest rate, change loan terms, or access home equity (cash-out refinance).
U
USDA Loan
A zero-down-payment mortgage guaranteed by the U.S. Department of Agriculture for eligible rural and suburban homebuyers meeting income limits.
V
VA Loan
A mortgage guaranteed by the U.S. Department of Veterans Affairs for eligible veterans, service members, and surviving spouses. Features no down payment, no PMI, and competitive rates.
Process & Timeline
6 terms
A
A
Appraisal
A professional assessment of a property's market value conducted by a licensed appraiser. Lenders require appraisals to ensure the property value supports the loan amount.
E
Escrow
A neutral third-party account that holds funds during a transaction. In mortgages, escrow accounts collect monthly payments for property taxes and insurance, which the servicer pays on your behalf.
L
Loan Estimate
A standardized three-page document that lenders must provide within three business days of receiving a mortgage application. Details estimated interest rate, monthly payment, and closing costs.
P
Pre-Approval
A lender's conditional commitment to lend a specific amount based on verified income, assets, and credit. Stronger than pre-qualification and shows sellers you're a serious buyer.
U
Underwriting
The process of evaluating a loan application to determine the borrower's creditworthiness and the property's value. Underwriters verify income, assets, employment, and assess risk.
Rates & Pricing
4 terms
A
Annual Percentage Rate (APR)
The total yearly cost of a mortgage expressed as a percentage, including the interest rate plus other charges such as points, broker fees, and certain closing costs. APR provides a more complete picture of loan costs than the interest rate alone.
I
Interest Rate
The cost of borrowing money expressed as a percentage. Unlike APR, it does not include other loan costs. Interest rates are determined by market conditions, credit score, loan type, and down payment.
P
Principal
The original amount borrowed on a mortgage, not including interest. As you make payments, the principal balance decreases, building equity in your home.
R
Rate Lock
A lender's guarantee that a specific interest rate will be available for a set period (typically 30-60 days) while your loan is processed. Protects against rate increases.
Costs & Fees
5 terms
C
Closing Costs
Fees and expenses paid at the closing of a real estate transaction, typically 2-5% of the loan amount. Includes lender fees, title insurance, appraisal, attorney fees, and prepaid items.
D
Discount Points
Upfront fees paid to the lender at closing to reduce the interest rate. One point equals 1% of the loan amount and typically reduces the rate by 0.25%. Also called mortgage points or buy-down points.
D
O
Origination Fee
A fee charged by the lender for processing a new loan application, typically 0.5% to 1% of the loan amount. Covers the lender's administrative costs.
P
PITI
Principal, Interest, Taxes, and Insurance - the four components of a typical monthly mortgage payment. Used by lenders to calculate housing expense ratios.
Qualification
2 terms
D
Debt-to-Income Ratio (DTI)
The percentage of gross monthly income that goes toward paying debts. Calculated by dividing total monthly debt payments by gross monthly income. Most lenders prefer DTI below 43%, though some programs allow higher.
L
Loan-to-Value Ratio (LTV)
The ratio of the loan amount to the property's appraised value, expressed as a percentage. An 80% LTV means you're borrowing 80% of the home's value. Lower LTV often means better rates and no PMI requirement.
Property
1 term
E
Equity
The difference between a property's market value and the outstanding mortgage balance. Equity increases as you pay down the mortgage or as property values rise.
Insurance
4 terms
H
Homeowners Insurance
Insurance that protects your home and belongings against damage or theft. Required by lenders and typically paid through escrow as part of your monthly mortgage payment.
M
P
Private Mortgage Insurance (PMI)
Insurance required on conventional loans when the down payment is less than 20%. Protects the lender if you default. Can be removed once you reach 20% equity.
T
Title Insurance
Insurance that protects against losses from defects in title, such as liens, encumbrances, or ownership disputes. Lender's title insurance is required; owner's policy is optional but recommended.
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