Mortgage glossary

A

Adjustable-Rate Mortgage (ARM)

A home loan with an interest rate that's fixed for an initial period and then adjusts periodically based on the market, which can change your monthly payment.

Amortization

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

Annual Percentage Rate (APR)

A broader measure of the cost of borrowing that includes the interest rate plus lender fees and other charges.

Appraisal

An independent evaluation of a home's market value, ordered by the lender to ensure the property supports the loan amount.

Appraisal Gap Coverage

A buyer's agreement to bring extra cash to closing if the home appraises below the contract price, used to strengthen an offer in a competitive market.

C

Cash-to-Close

The total amount you bring to settlement: down payment plus closing costs and prepaids, minus any credits and earnest money already paid.

Clear to Close

The lender's confirmation that underwriting is complete, all conditions have been satisfied, and your loan is approved to fund. Once you're clear to close, the title company can schedule your signing and prepare final figures.

Closer

The settlement/title professional who prepares the final closing paperwork, confirms the final numbers, and facilitates the signing and funding of the transaction.

Closing Costs

The various fees and expenses due at closing - typically 2% to 5% of the purchase price - including lender fees, title charges, taxes, and insurance.

Closing Disclosure (CD)

A standardized 5-page form you receive at least 3 business days before closing. It outlines your final loan terms, payments, and closing costs.

Conforming Loan

A mortgage that meets Fannie Mae and Freddie Mac guidelines, including the maximum loan limit set each year, which typically allows for more standardized approval and pricing than jumbo loans.

Contingency

A condition written into a purchase contract that must be met for the sale to proceed (e.g., home inspection, appraisal, financing).

Conventional Loan

A mortgage that is not government-insured and is typically approved using Fannie Mae/Freddie Mac guidelines, often requiring mortgage insurance if the down payment is less than 20%.

D

Debt-to-Income Ratio (DTI)

A measure used by lenders to compare your monthly debt obligations to your gross monthly income.

Down Payment

The portion of the home's purchase price that you pay upfront. Down payment requirements vary by loan type.

E

Earnest Money Deposit

A good-faith deposit made when you submit an offer to show you're serious. Applied toward your down payment and closing costs if the deal goes through.

Equity

The difference between your home's market value and what you owe on the mortgage. Equity builds as you pay down the loan or the home increases in value.

Escalation Clause

A provision in an offer that automatically raises your price above a competing offer by a set amount, up to a stated maximum.

Escrow Account

A separate account used by your lender to collect and pay property taxes and homeowners insurance on your behalf.

F

FHA Loan

A mortgage insured by the Federal Housing Administration that often allows a lower down payment and more flexible credit guidelines, but requires mortgage insurance premiums (upfront and monthly).

Fixed-Rate Mortgage

A home loan with an interest rate that stays the same for the entire loan term, so your principal- and-interest payment remains consistent.

Flood Certificate

A report ordered during the loan process that determines whether a property is in a FEMA- designated flood zone and whether flood insurance is required for the mortgage.

H

Hard Money Loan

A short-term, higher-cost loan from a private lender that's primarily based on the property's value (and your exit plan) rather than traditional income documentation, often used for investment or time-sensitive purchases.

Home Equity Line of Credit (HELOC)

A revolving line of credit, typically with a variable interest rate, secured by your home's equity that lets you borrow as needed up to an approved limit.

I

Inspection

An optional, professional evaluation of a home's condition (systems, structure, and safety) to identify issues before closing. Separate from the lender's appraisal.

J

Jumbo Loan

A mortgage that exceeds conforming loan limits and isn't eligible for Fannie Mae/Freddie Mac guidelines, so requirements and pricing vary by lender and often include stricter qualification standards.

L

Loan Estimate (LE)

A document you receive early in the loan process that estimates your interest rate, monthly payment, and closing costs.

Loan Officer

A mortgage professional who helps you choose a loan program, collect and submit documentation, and guide your loan from application through closing.

Loan-to-Value Ratio (LTV)

A measure comparing the loan amount to the home's value. Lower LTVs often get better rates and terms.

M

MIP (Mortgage Insurance Premium)

FHA mortgage insurance paid upfront and usually monthly, which protects the lender and is required on FHA loans regardless of down payment amount.

N

Non-QM Loan (Non-Qualified Mortgage)

A mortgage using alternative income documentation - bank statements, 1099s, rental income, or assets - for borrowers who don't fit conventional guidelines.

O

Origination Fee (Origination Points)

A lender charge for processing a new loan. It's typically expressed as a percentage of the loan amount.

Overlay

A stricter requirement a lender adds on top of a loan program's official guidelines. Because overlays vary from lender to lender, one lender may decline a file that another approves under the exact same program.

P

Physician Loan

A specialty mortgage for doctors, dentists, and other medical professionals, typically offering low or no down payment with no mortgage insurance and more favorable treatment of student loan debt.

PITI

Principal, interest, taxes, and insurance - the four parts of a standard monthly mortgage payment.

PMI (Private Mortgage Insurance)

Insurance typically required on conventional loans when you put down less than 20%, which protects the lender (not you) if the loan defaults and increases your monthly payment. Unlike FHA mortgage insurance, PMI can be removed: you can request cancellation at 20% equity, and your servicer must drop it automatically at 22%.

Points (Discount Points)

Optional fees you can pay upfront to reduce your interest rate. One point equals 1% of the loan amount.

Pre-Approval

A conditional commitment from a lender that estimates how much you can borrow, based on a review of your credit, income, and assets.

Prepaid Expenses

Upfront costs collected at closing for items like homeowners insurance, mortgage interest, and property taxes that cover future bills.

Pre-Qualification

A preliminary estimate of what you might qualify for, based on self-reported information. Less reliable than a pre-approval.

Principal

The amount of money you borrow, not including interest. Your monthly payment gradually reduces this balance over time.

Processor

Lender's team member who gathers and verifies your documents, orders third-party items (like the appraisal and title work), and prepares your loan file for underwriting.

R

Rate Lock

An agreement with your lender to secure a specific interest rate for a set period (usually 30 to 60 days) while your loan is processed.

Residual Income

The money left over each month after all obligations are paid; VA loans weigh this instead of setting a maximum debt-to-income ratio.

S

Seller Concession

A closing cost paid by the seller on your behalf to help reduce your out-of-pocket expenses.

Special Assessment

A one-time charge from an HOA or condo association, on top of regular dues, to fund a major expense like a roof or structural repair.

T

Title Company

The firm that researches the property's ownership history, coordinates the closing, and issues title insurance to protect against certain title-related claims.

Title Insurance

Protects you and your lender against legal claims to the property due to past ownership disputes, unpaid taxes, or filing errors.

U

Underwriter

The licensed professional who makes the approval decision on your loan. The underwriter reviews your credit, income, assets, and the property to confirm the file meets program guidelines, and issues any conditions that must be cleared before final approval.

Underwriting

The lender's process of evaluating your financial information to determine loan approval.

USDA Loan

A mortgage backed by the U.S. Department of Agriculture for eligible rural and some suburban areas, often offering 0% down for qualified buyers, with income and property location requirements.

V

VA Funding Fee

A one-time fee on VA loans that helps fund the VA program, typically paid at closing or rolled into the loan, and sometimes waived for eligible borrowers.

VA Loan

A mortgage backed by the U.S. Department of Veterans Affairs for eligible service members, veterans, and some surviving spouses, often offering no down payment and no monthly mortgage insurance.

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