Mortgage Glossary

ARM Loan

aka Adjustable-Rate Mortgage

A mortgage with an interest rate that adjusts on a set schedule after an initial fixed period.

Conforming Loan Limit

aka Conforming Limit

The maximum loan amount that Fannie Mae and Freddie Mac will purchase — above this, you need a jumbo loan.

Conventional Loan

aka Conforming Loan

A non-government-insured mortgage, typically conforming to Fannie Mae or Freddie Mac guidelines.

FHA Loan

aka Federal Housing Administration Loan

A government-insured mortgage with flexible credit and low down-payment requirements.

HELOC

aka Home Equity Line of Credit

A revolving credit line secured by your home equity. Borrow as needed, pay interest only on what you use.

Jumbo Loan

aka Non-Conforming Loan

A mortgage that exceeds the conforming loan limit, with stricter underwriting.

Non-QM Loan

aka Non-Qualified Mortgage

A mortgage that doesn't meet conforming Qualified Mortgage rules — used for self-employed, investors, complex cases.

USDA Loan

aka Rural Development Loan

Zero-down-payment mortgage for eligible rural and suburban homebuyers, backed by the USDA.

VA Loan

aka Veterans Affairs Loan

Zero-down-payment mortgage available to eligible veterans, active-duty military, and surviving spouses.

APR

aka Annual Percentage Rate

The all-in annual cost of a mortgage, including interest plus most upfront fees.

Closing Costs

aka Settlement Costs

The fees and charges paid at closing on top of the down payment, typically 2–5% of the purchase price.

Discount Points

aka Points

Optional upfront fees you pay to lower your interest rate. One point = 1% of the loan amount.

Interest Rate

aka Note Rate

The percentage charged for borrowing the principal. Does not include fees.

Origination Fee

aka Lender Fee

What the lender charges to process and underwrite your loan, typically 0.5–1.5% of the loan amount.

PITI

aka Principal, Interest, Taxes, Insurance

The four components of a typical monthly mortgage payment.

Property Tax

aka Real Estate Tax

The annual tax charged by the local government based on your property's assessed value.

Compensating Factors

Strong financial attributes that let an underwriter approve a loan that's borderline on standard guidelines.

Credit Score

aka FICO Score

A 3-digit number summarizing your credit history. Higher scores get better mortgage rates.

DSCR

aka Debt Service Coverage Ratio

Property rental income divided by housing payment. Used in investor loan qualification.

DTI Ratio

aka Debt-to-Income

The percentage of your gross monthly income that goes to debt payments, including your mortgage.

Front-End Ratio

aka Housing Ratio

The portion of your gross monthly income that goes only to your housing payment.

LTV Ratio

aka Loan-to-Value

The loan amount divided by the home's value, expressed as a percentage.

Qualifying Income

aka Effective Income

The portion of your income a lender will use to calculate DTI and approve your mortgage.

Appraisal

An independent valuation of the property's market value, ordered by the lender.

Closing Disclosure

aka CD

The final 5-page disclosure showing your exact mortgage terms and costs, delivered at least 3 days before closing.

Contingency

A condition in the purchase contract that lets you back out without penalty if not met.

Down Payment

The portion of the purchase price you pay in cash at closing, rather than financing.

Earnest Money

aka Good Faith Deposit

A deposit you make when your offer is accepted, showing you're serious about buying.

Escrow Account

aka Impound Account

An account the lender uses to collect property taxes and homeowners insurance with your mortgage payment.

Loan Estimate

aka LE

The standardized 3-page disclosure every lender must give you within 3 business days of applying.

Pre-Approval

aka Mortgage Pre-Approval

A lender's written confirmation of how much they're willing to lend you, based on a full review of your finances.

Pre-Qualification

aka Pre-Qual

A quick informal estimate of how much you might qualify for, based on self-reported information.

Rate Lock

aka Lock-In

A guarantee from the lender that your interest rate and points won't change for a set period.

Underwriting

The lender's process of verifying your finances, the property, and the loan terms before approval.

Homeowners Insurance

aka Hazard Insurance

Insurance covering damage to your home and personal property. Required by every mortgage lender.

MIP

aka FHA Mortgage Insurance Premium

Mortgage insurance required on every FHA loan, with both upfront and monthly components.

PMI

aka Private Mortgage Insurance

Insurance that protects the lender when you put less than 20% down on a conventional loan.

Title Insurance

Insurance protecting against past defects in the property's title, paid as a one-time premium at closing.

Cash-Out Refinance

aka Cash-Out Refi

Replacing your mortgage with a larger one and taking the difference in cash.

Rate-and-Term Refinance

aka No Cash-Out Refinance

Replacing your mortgage to get a lower rate or shorter term, without taking cash out.