Resources
Mortgage Glossary
A comprehensive guide to the most common mortgage terms and definitions. Understanding these terms will help you navigate the home-buying process with confidence.
A
Adjustable-Rate Mortgage (ARM)
A mortgage with an interest rate that changes periodically based on market conditions. Typically starts with a lower fixed rate for an initial period, then adjusts at set intervals.
Amortization
The process of paying off a loan through regular monthly payments that include both principal and interest. Early payments are mostly interest, while later payments are mostly principal.
Annual Percentage Rate (APR)
The total yearly cost of a mortgage expressed as a percentage. Includes the interest rate plus other charges like mortgage insurance, closing costs, and points.
Appraisal
A professional assessment of a property's market value conducted by a licensed appraiser. Required by lenders to ensure the property is worth the loan amount.
C
Closing Costs
Fees and expenses paid at the closing of a real estate transaction, beyond the property's purchase price. Typically 2-5% of the loan amount and include origination fees, title insurance, and more.
Conventional Loan
A mortgage not insured or guaranteed by a government agency. Typically requires higher credit scores and larger down payments than government-backed loans.
D
Debt-to-Income Ratio (DTI)
The percentage of your gross monthly income that goes toward paying debts. Lenders use this to determine how much mortgage you can afford. Most programs require a DTI below 43-50%.
Down Payment
The upfront cash payment made by the buyer toward the purchase price of a home. Expressed as a percentage of the purchase price (e.g., 20% down on a $400,000 home = $80,000).
E
Earnest Money
A deposit made by a buyer when submitting an offer on a home to demonstrate serious intent. Typically held in escrow and applied toward the down payment or closing costs.
Escrow
A neutral third-party account that holds funds during a real estate transaction. Also refers to an account set up by the lender to collect and pay property taxes and insurance on your behalf.
F
FHA Loan
A mortgage insured by the Federal Housing Administration. Designed for first-time and lower-income buyers, allowing down payments as low as 3.5% and more flexible credit requirements.
Fixed-Rate Mortgage
A mortgage with an interest rate that remains the same for the entire loan term. Provides predictable monthly payments. Most common terms are 15 and 30 years.
J
Jumbo Loan
A mortgage that exceeds the conforming loan limits set by the Federal Housing Finance Agency (FHFA). Requires higher credit scores and larger down payments than conforming loans.
L
Loan-to-Value Ratio (LTV)
The ratio of the loan amount to the appraised value of the property, expressed as a percentage. An $320,000 loan on a $400,000 home = 80% LTV.
M
Mortgage Insurance (MI/PMI)
Insurance that protects the lender if the borrower defaults on the loan. Required on conventional loans with less than 20% down payment. Can be canceled once equity reaches 20%.
Mortgage Broker
A licensed professional who acts as an intermediary between borrowers and lenders. Shops multiple wholesale lenders to find competitive rates and terms for the borrower's situation.
P
Pre-Approval
A lender's conditional commitment to lend a specific amount based on a review of the borrower's financial information. Stronger than pre-qualification and often required when making an offer.
Pre-Qualification
An initial assessment of how much a borrower might qualify for based on self-reported financial information. A useful first step but less thorough than pre-approval.
Principal
The original amount borrowed on a mortgage, not including interest. As you make payments, the principal balance decreases over time.
R
Refinance
Replacing an existing mortgage with a new one, typically to obtain a lower interest rate, change the loan term, or access home equity through a cash-out refinance.
T
Title Insurance
Insurance that protects the buyer and lender against claims or defects in the property's title. A one-time premium paid at closing.
U
Underwriting
The process by which a lender evaluates the risk of making a mortgage loan. The underwriter reviews the borrower's financial profile, the property, and the loan terms.
USDA Loan
A mortgage backed by the U.S. Department of Agriculture for eligible rural and suburban homebuyers. Offers zero down payment options and competitive interest rates.
V
VA Loan
A mortgage guaranteed by the U.S. Department of Veterans Affairs for eligible veterans, active-duty service members, and surviving spouses. Offers zero down payment and no mortgage insurance.
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