Mortgage Glossary

A mortgage with an interest rate that changes periodically based on a market index after an initial fixed-rate period. Common structures include 5/1, 7/1, and 10/1 ARMs, where the first number is the fixed period in years and the second is how often it adjusts after that.

The process of paying off a loan through regular monthly payments over time. Early in an amortizing loan, most of the payment covers interest. As the loan matures, more goes toward principal. A 30-year mortgage is fully amortized over 360 payments.

The total yearly cost of a mortgage expressed as a percentage, including the interest rate plus fees like origination costs and mortgage insurance. APR is always higher than the interest rate and gives a more complete picture of what you're actually paying.

A professional assessment of a property's fair market value, conducted by a licensed appraiser. Lenders require an appraisal to confirm the property is worth at least the loan amount before approving financing.

The percentage of your gross monthly income that goes toward all monthly debt obligations — housing payment plus credit cards, car loans, and student loans. Most lenders prefer a back-end ratio below 43–50%.

A financing arrangement where points or seller concessions are used to reduce the mortgage rate. A temporary buydown (like 3-2-1) lowers the rate for the first few years; a permanent buydown reduces it for the loan's full term.

A limit on how much an ARM's rate can change at each adjustment period or over the loan's lifetime. A common structure is 2/2/5 — meaning 2% max at the first adjustment, 2% at each subsequent adjustment, and 5% over the life of the loan.

The stage in the mortgage process when the underwriter has reviewed and approved all conditions — meaning your loan is ready to fund. Receiving a CTC typically means you're within a few days of sitting down at the closing table.

The final step in a real estate transaction where ownership legally transfers from seller to buyer. You sign all loan documents, pay closing costs, and receive the keys to your new home.

Fees and expenses paid at closing, typically 2–5% of the loan amount. They include the appraisal, title insurance, origination fees, prepaid interest, property taxes, and government recording fees.

A five-page document provided at least 3 business days before closing outlining the final terms of your loan — rate, monthly payment, and all closing costs. Compare it carefully to your Loan Estimate to catch any discrepancies.

Recently sold properties with similar characteristics used by appraisers to estimate a home's market value. Appraisers typically look at sales within the past 6 months and within a reasonable distance of the subject property.

The maximum loan amount eligible for purchase by Fannie Mae and Freddie Mac. For 2026, the baseline conforming limit is $806,500. Loans above this threshold are jumbo loans and follow different underwriting guidelines.

A condition that must be met for a real estate contract to remain binding. Common contingencies include home inspection, financing, and appraisal. If a contingency isn't satisfied, the buyer can typically walk away without losing their earnest money.

A mortgage not insured or guaranteed by the federal government. Conventional loans typically require a minimum 3% down payment and a 620+ credit score, and follow guidelines set by Fannie Mae and Freddie Mac.

A detailed history of your borrowing and repayment behavior, compiled by the three major credit bureaus: Equifax, Experian, and TransUnion. Lenders pull your credit report to assess your likelihood of repaying the loan.

The percentage of your gross monthly income that goes toward all debt payments. Lenders use DTI to determine how much you can afford to borrow. Most conventional loans require a DTI below 45–50%.

The legal document that transfers ownership of real property from one party to another. The deed is recorded with the county recorder's office to create a permanent public record of the ownership transfer.

Prepaid interest paid at closing to permanently lower your mortgage rate. One point equals 1% of the loan amount and typically reduces your rate by 0.25%. Buying points makes financial sense if you plan to stay in the home long enough to recoup the upfront cost.

The difference between your home's current market value and the amount you still owe on your mortgage. Equity builds as you pay down your loan and as the property appreciates over time.

An account held by your loan servicer to collect and pay property taxes and homeowner's insurance on your behalf. A portion of your monthly mortgage payment goes into escrow each month so the bills are covered when they come due.

The price a property would sell for between a willing buyer and a willing seller, both with reasonable knowledge of the facts and neither under pressure to complete the transaction.

A mortgage insured by the Federal Housing Administration. FHA loans allow down payments as low as 3.5% with a 580+ credit score, making them popular with first-time homebuyers and those with limited savings.

A credit score ranging from 300 to 850, developed by Fair Isaac Corporation and used by most mortgage lenders. Scores of 740+ typically qualify for the most competitive rates; FHA loans are available down to 580 with a 3.5% down payment.

A mortgage where the interest rate stays the same for the entire loan term. Your principal and interest payment never changes, making long-term budgeting predictable regardless of what happens in the market.

Separate coverage required for properties in FEMA-designated flood zones. Standard homeowner's insurance does not cover flood damage — lenders require flood insurance for homes in high-risk zones as a condition of the mortgage.

The percentage of your gross monthly income that goes toward total housing costs — principal, interest, taxes, insurance, and HOA dues. Most conventional lenders prefer a front-end ratio below 28%.

A short-term loan secured by real property, typically offered by private investors rather than banks. Used primarily for investment properties, fix-and-flips, and situations where speed matters more than rate.

A Home Equity Line of Credit is a revolving line of credit secured by your home's equity. You can draw from it as needed during the draw period — similar to a credit card — and only pay interest on what you actually use.

The portion of your home's value that you truly own — calculated as the home's market value minus any outstanding mortgage balance. Home equity can be accessed through a HELOC, cash-out refinance, or home equity loan.

A professional examination of a property's structural and mechanical condition. While not required by lenders, a home inspection is strongly recommended to identify problems before you're legally obligated to purchase.

Insurance protecting your home and personal property against damage from fire, theft, and certain weather events. Lenders require an active homeowner's insurance policy as a condition of your mortgage approval.

A benchmark interest rate used to calculate adjustments on an ARM. The most common index today is SOFR (Secured Overnight Financing Rate). Your ARM rate equals the current index plus your loan's fixed margin.

The annual cost of borrowing money expressed as a percentage of the loan amount. Unlike APR, the interest rate does not include fees — it's the base number used to calculate your monthly principal and interest payment.

A mortgage where you pay only interest for a set period, after which you begin paying principal and interest. Monthly payments are lower initially but increase significantly once the principal repayment period begins.

A mortgage that exceeds the conforming loan limit set by the FHFA — $806,500 in most areas for 2026. Jumbo loans require stronger credit, larger down payments, and often carry slightly higher rates than conforming loans.

A policy protecting the lender against losses from title defects or ownership disputes. Required by virtually all lenders, it covers their interest in the property up to the loan amount.

A standardized three-page document provided within 3 business days of your mortgage application estimating loan terms, monthly payment, and closing costs. Use it to compare offers side-by-side from multiple lenders.

A fee charged by the lender for processing, underwriting, and funding your mortgage. Origination fees are typically 0.5–1% of the loan amount and are sometimes negotiable, especially when working with a broker.

The ratio of your loan amount to the property's appraised value, expressed as a percentage. A lower LTV means more equity and less risk for the lender, which often translates to better rates and no PMI requirement.

The fixed percentage added to an ARM's index rate to determine your interest rate after the initial period ends. The margin is set at origination and never changes. Example: 5.0% index + 2.5% margin = 7.5% adjusted rate.

The date when the final mortgage payment is due and the loan balance reaches zero. A 30-year mortgage originated in March 2026 has a maturity date of March 2056.

Insurance required on all FHA loans, paid both upfront (1.75% of the loan) and annually (0.55–1.05%). Unlike PMI on conventional loans, MIP on FHA loans with less than 10% down lasts for the life of the loan.

The Nationwide Mortgage Licensing System is the national database for licensed mortgage professionals. All loan originators are required to maintain an NMLS license number — consumers can verify any broker's credentials and history at nmlsconsumeraccess.org.

A mortgage that doesn't meet the CFPB's Qualified Mortgage standards. Non-QM loans serve borrowers who are self-employed, have non-traditional income, or don't fit standard lending guidelines — bank statement loans fall in this category.

An optional policy protecting the homeowner against title defects discovered after closing — such as forged deeds or undisclosed liens. It's a one-time cost at closing that protects your investment for as long as you own the home.

A lender's conditional commitment to lend a specific amount based on a verified review of your income, assets, and credit. A pre-approval letter strengthens your offer significantly and shows sellers you're a qualified, serious buyer.

An informal estimate of how much you may be able to borrow based on self-reported financial information — no documents or credit pull required. Pre-qualification is a useful starting point but carries far less weight than a full pre-approval.

A fee some lenders charge for paying off your mortgage before the penalty period ends. Most conventional and government-backed loans don't carry prepayment penalties, but some non-QM and hard money loans do — always check before signing.

The original amount borrowed, not including interest or fees. Each monthly payment is applied first to accrued interest, then to reducing the outstanding principal. As your principal decreases, so does the interest portion of each payment.

Insurance required on conventional loans with less than 20% down. PMI protects the lender — not you — if you default. The good news: it can be removed once you reach 20% equity in the home.

A mortgage meeting standards set by the Consumer Financial Protection Bureau that provides certain legal protections to lenders. QM loans cap total fees, require verification of the borrower's ability to repay, and generally prohibit risky features like negative amortization.

A lender's written guarantee that your interest rate and points will be honored for a set period — typically 30, 45, or 60 days. Locking your rate protects you if market rates rise while your loan is being processed.

Fees charged by the county to officially record the property transfer and new mortgage in public records. These are typically a few hundred dollars and are included in your closing costs.

The Real Estate Settlement Procedures Act governs how lenders disclose closing costs and prohibits kickbacks between settlement service providers. RESPA is why you receive both a Loan Estimate and a Closing Disclosure during the mortgage process.

A low introductory interest rate on an adjustable-rate mortgage, often below the fully-indexed rate. The teaser rate is temporary — it applies only during the initial fixed period before the ARM begins adjusting to market conditions.

The Truth in Lending Act requires lenders to clearly disclose the terms and full cost of credit — including the interest rate and APR — before you sign. TILA also gives borrowers the right to cancel certain refinance transactions within 3 business days.

A one-time policy protecting against losses from disputes over property ownership, hidden liens, or title defects. Lender's title insurance is required by most lenders; owner's title insurance is optional but highly recommended for your own protection.

A review of public records to verify the legal ownership of a property and identify any existing liens or claims. Title searches are conducted before closing to ensure the seller has the legal right to sell and transfer clear title.

The process by which a lender evaluates the risk of approving a mortgage. Underwriters review your income, assets, credit history, and the property itself to confirm the loan meets lending guidelines before issuing a final approval.

A loan backed by the US Department of Agriculture for properties in eligible rural and suburban areas. USDA loans offer 100% financing with no down payment required for qualifying borrowers and properties.

A mortgage guaranteed by the Department of Veterans Affairs for eligible service members, veterans, and surviving spouses. VA loans offer zero down payment, no PMI, and typically among the most competitive rates available.