The Mortgage Glossary.
Every Term Explained Simply.
From APR to USDA — a plain-language guide to every mortgage term you'll encounter on your journey to homeownership.
Why a Glossary Matters
Mortgage terminology can feel like a second language — especially when you're in the middle of the most important financial transaction of your life. Loan Estimates, DTI ratios, MIP, escrow, rate locks — these terms show up in your documents and conversations constantly.
This glossary breaks down over 100 of the most important mortgage terms in plain English. You won't find textbook definitions here. You'll find real explanations written the way a good Loan Guide would explain them across the table. Use it as a reference before, during, and after your loan process.
And if a term comes up that you don't see here — or that you'd like explained in the context of your specific situation — we're a phone call or email away.
A
Adjustable-Rate Mortgage (ARM)
A mortgage with an interest rate that changes periodically based on a financial index plus a set margin. ARMs typically offer a lower initial fixed-rate period before adjusting annually.
Amortization
The process of paying off a loan through scheduled payments that cover both principal and interest. In the early years of a mortgage, most of each payment goes toward interest.
Annual Percentage Rate (APR)
The true annual cost of borrowing, expressed as a percentage. APR includes the interest rate plus lender fees and other loan costs, making it a more complete comparison tool.
Appraisal
An independent assessment of a property's market value conducted by a licensed appraiser. Required by lenders on nearly all mortgage transactions.
Appraised Value
The dollar value assigned to a property by a licensed appraiser based on comparable sales, condition, location, and other factors.
Assumable Loan
A mortgage that can be transferred from the seller to the buyer, allowing the buyer to take over the existing loan terms — including the interest rate.
Automated Underwriting System (AUS)
Software used by lenders to assess a loan file and issue a preliminary approval recommendation.
B
Back-End DTI
The total debt-to-income ratio — your proposed monthly mortgage payment plus all other recurring monthly debt obligations divided by gross monthly income.
Balloon Payment
A large lump-sum payment due at the end of certain loan terms. Less common in residential mortgages today.
Bank Statement Loan
A non-QM mortgage product that qualifies self-employed borrowers using 12 to 24 months of bank statement deposits rather than W-2s and tax returns.
Basis Point
One one-hundredth of one percent (0.01%). Mortgage rates and fee changes are frequently quoted in basis points.
Borrower
An individual or entity who applies for and receives a mortgage loan, assuming the legal obligation to repay the debt.
Bridge Loan
A short-term loan used to bridge the gap between buying a new home and selling an existing one.
Buydown
A financing arrangement where points are paid upfront at closing to reduce the interest rate for a period (temporary buydown) or for the life of the loan (permanent buydown).
C
Cap (ARM)
A limit on how much an adjustable-rate mortgage's interest rate or monthly payment can increase.
Cash-Out Refinance
A refinance in which the borrower takes a new mortgage for more than the current loan balance and receives the difference in cash.
Certificate of Eligibility (COE)
A document issued by the U.S. Department of Veterans Affairs confirming a veteran's or service member's eligibility for VA loan benefits.
Clear to Close (CTC)
Lender notification that all underwriting conditions have been satisfied and the loan is approved to fund.
Closing
The final step of the mortgage process where all loan documents are signed, funds are disbursed, and ownership transfers.
Closing Costs
Fees and expenses paid at closing in addition to the down payment. Typically 2–5% of the loan amount.
Closing Disclosure (CD)
A standardized five-page form required by RESPA that provides final details about the mortgage loan terms, projected monthly payments, and all closing costs.
Co-Borrower
A second borrower on a mortgage application whose income, assets, and credit are included in the qualification process.
Comparable Sales (Comps)
Recent sales of similar properties in the same area used by appraisers to estimate a subject property's market value.
Conforming Loan
A mortgage that meets the guidelines established by Fannie Mae and Freddie Mac, including loan limits, credit, and documentation requirements.
Conventional Loan
A mortgage not backed by a government agency. Typically requires stronger credit and documentation than government-backed programs but offers flexible terms.
Credit Report
A detailed record of a borrower's credit history compiled by the three major bureaus — Equifax, Experian, and TransUnion.
Credit Score
A numerical representation of a borrower's creditworthiness. The most widely used score in mortgage underwriting is the FICO score.
D
Debt Service Coverage Ratio (DSCR)
A metric used in investment property lending equal to gross rental income divided by total monthly housing expense.
Debt-to-Income Ratio (DTI)
The percentage of a borrower's gross monthly income that goes toward debt payments.
Deed
A legal document that transfers ownership of a property from one party to another.
Deed in Lieu of Foreclosure
A transaction in which a borrower voluntarily transfers property ownership to the lender to satisfy the mortgage debt and avoid formal foreclosure.
Default
Failure to fulfill the legal obligations of a mortgage, most commonly by missing scheduled payments.
Deferred Interest
Interest that is added to the loan balance rather than paid in the current period.
Discount Points
Prepaid interest paid at closing to buy down the mortgage interest rate. One point equals 1% of the loan amount.
Down Payment
The portion of the purchase price paid by the buyer at closing, not financed through the mortgage.
Draw Schedule
In construction lending, a predetermined plan for disbursing loan funds to the builder at specific construction milestones.
DSCR Loan
A mortgage product for real estate investors that qualifies based on property rental income rather than personal income.
E
Earnest Money
A deposit made by a buyer when submitting a purchase offer to demonstrate serious intent.
Effective Interest Rate
The actual annual rate of interest earned or paid on a loan, accounting for compounding.
Equal Housing Lender
A federal designation indicating that a lender complies with the Fair Housing Act and Equal Credit Opportunity Act.
Equity
The difference between a property's current market value and the outstanding mortgage balance.
Escrow
An account held by a neutral third party to collect and pay property taxes and homeowners insurance on the borrower's behalf.
Escrow Account (Impound Account)
The account maintained by the loan servicer that holds the borrower's property tax and insurance reserves.
F
Fair Market Value (FMV)
The price a willing buyer would pay a willing seller in an arm's-length transaction.
Fannie Mae (FNMA)
A government-sponsored enterprise (GSE) that purchases conventional mortgages from lenders.
FHA Loan
A mortgage insured by the Federal Housing Administration. Lower credit score and down payment requirements than conventional loans.
FHA Streamline Refinance
A simplified refinance program for existing FHA loan holders with reduced documentation.
FICO Score
The credit scoring model developed by Fair Isaac Corporation and most widely used by mortgage lenders.
First Mortgage
The primary lien on a property — the main mortgage. Has the highest priority claim in a foreclosure.
Fixed-Rate Mortgage
A mortgage with an interest rate that does not change for the entire loan term.
Flood Insurance
Insurance required by lenders for properties in FEMA-designated Special Flood Hazard Areas.
Forbearance
A temporary agreement between a borrower and lender to pause or reduce mortgage payments during a period of financial hardship.
Foreclosure
The legal process by which a lender takes possession of and sells a mortgaged property after the borrower defaults.
Freddie Mac (FHLMC)
A GSE that, like Fannie Mae, purchases conforming mortgages from lenders and provides liquidity to the market.
Front-End DTI
The housing expense ratio — proposed monthly housing payment divided by gross monthly income.
Fully Amortizing Loan
A loan structured so that making all scheduled payments results in a zero balance at the end of the term.
Funding Fee (VA)
A one-time fee paid by most VA loan borrowers to help sustain the VA home loan program.
G
Gift Funds
Money given to a borrower by a family member, employer, or eligible organization for use toward a down payment or closing costs.
Good Faith Estimate (GFE)
A predecessor to the current Loan Estimate. Replaced by the standardized Loan Estimate form under TRID rules.
Government-Sponsored Enterprise (GSE)
Fannie Mae and Freddie Mac — privately owned companies with a public mission of providing liquidity and stability to the U.S. mortgage market.
Gross Income
Total income before taxes and deductions. The figure used in most mortgage DTI calculations.
Guarantee Fee (USDA)
The mortgage insurance equivalent for USDA loans. Consists of an upfront guarantee fee and an annual fee.
H
Hard Inquiry
A credit check initiated by a lender as part of a credit application. Can temporarily lower a credit score.
HECM (Home Equity Conversion Mortgage)
The most common type of reverse mortgage, insured by FHA and regulated by HUD. Available to homeowners age 62 and older.
HELOC (Home Equity Line of Credit)
A revolving credit line secured by home equity. Borrowers can draw, repay, and redraw up to an approved limit.
Home Equity
The portion of a home's value the homeowner actually owns — market value minus outstanding mortgage balance.
Home Equity Loan
A fixed-rate second mortgage that provides a lump sum based on available home equity.
Homeowners Insurance (HOI)
Insurance covering the structure and contents of a home against damage from fire, theft, certain weather events, and liability.
HUD
The U.S. federal agency responsible for national housing policy, fair housing enforcement, and administration of FHA programs.
HUD-1 Settlement Statement
A form previously used to itemize all charges and credits at closing. Replaced by the Closing Disclosure for most transactions.
I
Index (ARM)
The benchmark interest rate used to calculate adjustments to an adjustable-rate mortgage.
Interest Rate
The cost of borrowing money expressed as a percentage of the loan balance, applied annually.
Interest-Only Payment
A payment that covers only the accruing interest on the loan balance, with no principal reduction.
J
Jumbo Loan
A mortgage exceeding the FHFA conforming loan limit. Requires stronger credit, larger down payment, and greater cash reserves.
Junior Lien
Any mortgage or lien on a property that is subordinate to the first mortgage. A HELOC is a junior lien.
L
Lender Credit
Money given by the lender to offset closing costs in exchange for a higher interest rate.
LESA (Life Expectancy Set-Aside)
A portion of reverse mortgage proceeds reserved to cover future property taxes and insurance payments.
Lien
A legal claim against a property as security for a debt.
Loan Estimate (LE)
A standardized three-page form required by TRID that must be provided within 3 business days of receiving a mortgage application.
Loan Officer (LO)
A licensed mortgage professional who originates loans on behalf of a lender or broker.
Loan Origination Fee
A fee charged by the lender for processing a mortgage application and originating the loan.
Loan-to-Value Ratio (LTV)
The ratio of the loan amount to the property's appraised value, expressed as a percentage.
M
Margin (ARM)
A fixed percentage added to the index rate to determine the fully indexed rate on an adjustable-rate mortgage.
Maturity Date
The date on which the final mortgage payment is due and the loan balance is expected to be zero.
MIP (Mortgage Insurance Premium)
The mortgage insurance required on FHA loans. Consists of an upfront premium and an annual premium.
Mortgage
A legal agreement in which a borrower pledges real estate as collateral for a loan.
Mortgage Broker
A licensed professional or company that originates mortgage loans by working with multiple wholesale lenders on behalf of borrowers.
Mortgage Insurance
Insurance that protects the lender (not the borrower) in case of default.
Mortgage Note
The legal document signed by the borrower that outlines the terms of the loan.
MPR (Minimum Property Requirements)
Standards set by VA and FHA requiring that homes meet minimum levels of safety, structural soundness, and sanitation.
N
Negative Amortization
When a loan's outstanding balance increases rather than decreases because scheduled payments are less than the accruing interest.
Non-Conforming Loan
A mortgage that does not meet Fannie Mae or Freddie Mac guidelines.
Non-QM (Non-Qualified Mortgage)
A mortgage that does not meet the CFPB's Qualified Mortgage safe-harbor standards, typically because it uses alternative income documentation.
Note Rate
The interest rate stated on the mortgage note — also called the nominal rate.
O
One Time Close (OTC) Construction Loan
A construction-to-permanent loan that combines construction financing and the permanent mortgage into a single closing.
Origination
The process of creating a new mortgage loan — from application through underwriting to funding.
Owner-Occupied
A property the borrower intends to live in as their primary residence.
P
Per Diem Interest
Daily interest that accrues on the loan balance.
PITIA
An acronym for Principal, Interest, Taxes, Insurance, and Association dues (HOA). Represents the full monthly housing payment.
PMI (Private Mortgage Insurance)
Insurance required on conventional loans when the LTV exceeds 80%. Protects the lender against default.
Points
See: Discount Points. Fees paid at closing equal to 1% of the loan amount each, in exchange for a reduced interest rate.
Pre-Approval
A lender's written commitment to extend a mortgage loan up to a specific amount, based on verified income, assets, and credit.
Pre-Qualification
An informal estimate of borrowing capacity based on self-reported financial information. Not verified.
Prepayment Penalty
A fee charged by some lenders when the borrower pays off the loan early.
Primary Residence
The property where the borrower lives most of the time.
Principal
The amount of money borrowed, or the remaining unpaid balance on a loan, not including interest.
Principal Limit
In reverse mortgage terminology, the maximum amount a borrower can receive based on age, home value, and interest rate.
Purchase Agreement
A legally binding contract between a buyer and seller outlining the terms of a real estate transaction.
Q
Qualified Mortgage (QM)
A mortgage meeting specific standards under CFPB rules designed to ensure the borrower has the ability to repay the loan.
R
Rate Lock
A lender's commitment to honor a specific interest rate for a defined period.
Rate-and-Term Refinance
A refinance that changes the interest rate, the loan term, or both, without significantly increasing the loan balance.
RESPA
Real Estate Settlement Procedures Act. A federal law requiring lenders to disclose loan costs and prohibiting certain practices.
Refinancing
Replacing an existing mortgage with a new one — typically to obtain a better interest rate, change the loan term, or access equity.
Rescission Period
A federally mandated 3-business-day period after closing during which borrowers on certain refinance transactions may cancel the loan.
Residual Income
A VA-specific qualification metric that measures the income remaining after all monthly obligations are paid.
Reverse Mortgage
A loan for homeowners age 62+ that converts home equity into cash without requiring monthly mortgage payments.
S
Second Mortgage
A loan secured by a property that already has an existing first mortgage.
Seller Concessions
Credits from the seller toward the buyer's closing costs, negotiated as part of the purchase contract.
Short Sale
A sale of a property for less than the outstanding mortgage balance, with the lender's approval.
Soft Inquiry
A credit check that does not affect credit scores.
Survey
A measurement of a property's boundaries and physical features conducted by a licensed surveyor.
T
Title
Legal ownership of a property.
Title Insurance
Insurance protecting against losses arising from disputes over property ownership, undiscovered liens, or other title defects.
Title Search
A review of public records to verify the property's ownership history and identify any outstanding liens.
TILA
Truth in Lending Act. A federal law requiring lenders to disclose the true cost of credit to borrowers.
TRID
TILA-RESPA Integrated Disclosure. The regulatory framework combining TILA and RESPA disclosures into the Loan Estimate and Closing Disclosure forms.
Truth in Lending Disclosure
A required disclosure under TILA providing details about the loan terms, APR, total payments, and total interest.
U
Underwriting
The lender's process of evaluating a loan application to determine the risk of extending credit.
USDA Loan
A zero-down-payment mortgage backed by the U.S. Department of Agriculture for eligible rural and suburban properties.
V
VA Funding Fee
See: Funding Fee (VA).
VA Loan
A mortgage guaranteed by the U.S. Department of Veterans Affairs, available to eligible veterans and active-duty service members.
Vesting
The manner in which title to a property is held — individually, jointly, in a trust, or by an entity.
W
W-2
An IRS tax form issued by employers that reports annual wages paid and taxes withheld.
Waiting Period
The time a borrower must wait after a derogatory credit event before qualifying for a new mortgage.
Warranty Deed
A deed in which the seller guarantees clear title to the buyer and agrees to defend the buyer against any future title claims.
Didn't Find What You Were Looking For?
Mortgage terminology evolves — and sometimes the most important question is the one that doesn't have a tidy definition. If you're reading a Loan Estimate, a Closing Disclosure, or any mortgage document and something isn't clear, we want to hear about it.