MORTGAGE EDUCATION
Mortgage Glossary
Mortgage terminology should feel clear, not complicated. Search or browse 150 common home loan terms explained in straightforward language.
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Adjustable-Rate Mortgage (ARM)
A mortgage with an interest rate that is fixed for an initial period and can adjust later based on the loan terms and a market index.
Adjustment Period
The interval between interest-rate changes on an adjustable-rate mortgage after the initial fixed period ends.
Affiliated Business Arrangement (AfBA)
A business relationship in which a settlement-service provider refers a consumer to another provider with which it has an ownership or financial interest, subject to disclosure and other legal requirements.
Amortization
The gradual repayment of a loan through scheduled payments that include principal and interest.
Amortization Schedule
A table showing how each mortgage payment is divided between principal and interest and how the loan balance declines over time.
Annual Percentage Rate (APR)
A broader measure of borrowing cost that includes the interest rate and certain loan charges, expressed as an annual percentage.
Application
The information a borrower provides to request mortgage financing, including income, assets, debts, credit, employment, and property details.
Appraisal
An independent professional opinion of a property's market value used by the lender to evaluate the collateral.
Appraisal Gap
The difference between a property's purchase price and its appraised value when the appraisal comes in lower than the agreed price.
Appraisal Waiver
Permission from an eligible automated underwriting system to complete a loan without a traditional in-person appraisal.
Asset
Something of financial value owned by a borrower, such as cash, investments, retirement funds, or real estate.
Asset Depletion
A qualifying method that converts eligible assets into an estimated monthly income amount for mortgage underwriting.
Automated Underwriting System (AUS)
Software used to evaluate a mortgage application against investor or agency guidelines and issue an underwriting recommendation.
Balloon Mortgage
A loan with payments based on a longer amortization schedule but requiring a large remaining balance to be paid at the end of a shorter term.
Basis Point
One one-hundredth of one percentage point. One hundred basis points equals 1.00%.
Borrower
A person who applies for and becomes legally responsible for repaying a mortgage loan.
Broker Compensation
The amount paid to a mortgage broker for arranging and facilitating a loan, subject to applicable compensation and disclosure rules.
Buydown
A financing arrangement in which funds are used to reduce the borrower's interest rate temporarily or permanently.
Cash-Out Refinance
A refinance in which the new loan is larger than the existing mortgage balance and the borrower receives part of the difference in cash.
Cash Reserves
Funds remaining after closing that may be required by the loan program and measured in months of housing payments.
Cash to Close
The estimated amount a borrower must bring to closing after accounting for the down payment, closing costs, prepaid items, deposits, and credits.
Certificate of Eligibility (COE)
A document confirming a qualified service member's or veteran's eligibility for a VA-backed home loan.
Clear to Close
A status indicating that underwriting conditions have been satisfied and the loan is ready for final closing steps.
Closing
The meeting or process in which final loan and property-transfer documents are signed and required funds are delivered.
Closing Costs
Expenses associated with obtaining a mortgage and transferring property, such as lender, title, appraisal, recording, and prepaid charges.
Closing Disclosure (CD)
A standardized form showing the final loan terms, projected payments, and closing costs for most consumer mortgage transactions.
Co-Borrower
An additional person who applies for the loan, shares responsibility for repayment, and may have an ownership interest in the property.
Collateral
Property pledged to secure a loan and subject to the lender's lien until the debt is repaid.
Combined Loan-to-Value Ratio (CLTV)
The total of all loans secured by a property divided by the property's value or purchase price, as applicable.
Conforming Loan
A conventional mortgage that meets the size and underwriting standards required for purchase by Fannie Mae or Freddie Mac.
Construction-to-Permanent Loan
A financing structure that funds home construction and later converts into permanent mortgage financing.
Contingency
A contract condition that must be satisfied for a real estate transaction to proceed, such as financing, appraisal, inspection, or sale of another property.
Conventional Loan
A mortgage that is not insured or guaranteed by a federal government agency.
Credit Report
A record of a consumer's credit accounts, balances, payment history, inquiries, and certain public information used in lending decisions.
Credit Score
A numerical estimate of credit risk based on information in a consumer's credit report.
Debt-to-Income Ratio (DTI)
The percentage of a borrower's gross monthly income used to pay recurring monthly debts, including the proposed housing payment.
Deed
A legal document that transfers ownership of real property from one party to another.
Deed of Trust
A security instrument used in many states, including Texas, that places a lien on real property to secure repayment of a loan.
Default
Failure to meet the legal obligations of a loan, such as making required payments or maintaining required insurance.
Delinquency
A past-due loan status resulting from a missed or incomplete payment.
Discount Point
An upfront fee generally equal to 1% of the loan amount that may be paid to obtain a lower interest rate.
Down Payment
The portion of the purchase price paid by the buyer rather than financed through the mortgage.
Down Payment Assistance (DPA)
A program providing eligible buyers with grants, forgivable loans, deferred loans, or other funds for down payment or closing costs.
Earnest Money
A good-faith deposit made by a buyer after a purchase contract is accepted and usually credited toward funds due at closing.
Encumbrance
A claim, lien, restriction, or other interest that may affect ownership or use of real property.
Equal Credit Opportunity Act (ECOA)
A federal law prohibiting discrimination in credit transactions based on protected characteristics and requiring certain notices to applicants.
Equity
The difference between a property's current market value and the total debt secured by the property.
Escrow
A neutral arrangement in which money or documents are held by a third party until specified conditions are satisfied.
Escrow Account
An account maintained by a loan servicer to collect and pay property taxes, homeowners insurance, and certain other property-related expenses.
Escrow Analysis
A periodic review of an escrow account to determine whether monthly deposits should change based on projected taxes, insurance, shortages, or surpluses.
Escrow Waiver
Approval allowing a borrower to pay eligible property taxes and insurance directly instead of through a lender-managed escrow account.
Fannie Mae
A government-sponsored enterprise that purchases qualifying mortgages from lenders and supports liquidity in the housing-finance market.
Federal Housing Administration (FHA)
A federal agency within HUD that insures eligible residential mortgage loans made by approved lenders.
FHA Loan
A mortgage insured by the Federal Housing Administration that offers flexible qualifying and down-payment options for eligible borrowers.
FHA Streamline Refinance
A simplified refinance option for eligible existing FHA loans that may require less documentation than a standard refinance.
Finance Charge
The total dollar cost of consumer credit as defined by federal disclosure rules, including interest and certain loan fees.
Fixed-Rate Mortgage
A mortgage with an interest rate that remains unchanged for the full loan term.
Flood Certification
A determination of whether a property is located in a designated special flood hazard area.
Flood Insurance
Insurance covering eligible flood-related property damage and generally required when a secured property lies in a designated high-risk flood zone.
Forbearance
A temporary agreement allowing reduced or paused mortgage payments during a qualifying hardship, with repayment terms determined afterward.
Foreign National Loan
A mortgage program designed for eligible non-U.S. citizens who may not qualify through traditional documentation or residency standards.
Freddie Mac
A government-sponsored enterprise that purchases qualifying mortgages from lenders and supports liquidity in the housing-finance market.
Gift Funds
Money given by an eligible donor to help a borrower with a down payment, closing costs, or reserves, subject to program documentation rules.
Gross Monthly Income
Income before taxes and other deductions, commonly used when calculating mortgage qualifying ratios.
Hazard Insurance
Property insurance protecting against covered losses such as fire, wind, theft, or other hazards; commonly referred to as homeowners insurance.
Home Equity
The portion of a property's value remaining after subtracting all liens secured by the property.
Home Equity Line of Credit (HELOC)
A revolving line of credit secured by home equity that allows borrowing, repayment, and reuse during an available draw period.
Home Equity Loan
A closed-end loan secured by home equity that generally provides a lump sum and fixed repayment schedule.
Home Inspection
An evaluation of a property's condition performed for the buyer; it is separate from the lender's appraisal.
Homeowners Association (HOA)
An organization that manages a residential community and may charge dues, enforce restrictions, and maintain shared areas.
Homeowners Insurance
Insurance protecting a homeowner and property against covered losses and liability claims.
Housing Expense Ratio
The percentage of gross monthly income used for the proposed housing payment, sometimes called the front-end ratio.
Impound Account
Another term for an escrow account used to collect and pay property taxes, homeowners insurance, and similar expenses.
Income
Earnings or other recurring funds evaluated by a lender to determine a borrower's ability to repay the loan.
Index
A published benchmark used to calculate future interest-rate adjustments on certain adjustable-rate mortgages.
Initial Rate
The interest rate in effect during the first period of an adjustable-rate mortgage.
Interest
The cost charged for borrowing money, usually expressed as a percentage of the outstanding principal.
Interest-Only Mortgage
A mortgage that permits payments of interest without scheduled principal reduction for a specified period.
Interest Rate
The percentage charged on the outstanding principal balance of a loan.
Investment Property
Real estate owned primarily to generate rental income, appreciation, or other investment returns rather than serve as the borrower's primary residence.
Jumbo Loan
A mortgage with a loan amount above the applicable conforming loan limit or otherwise outside standard agency size limits.
Late Fee
A charge that may be assessed when a required mortgage payment is not received within the permitted grace period.
Lender Credit
A credit from the lender that reduces a borrower's closing costs, often in exchange for a higher interest rate.
Lien
A legal claim against property that secures payment of a debt or obligation.
Loan Estimate (LE)
A standardized disclosure describing estimated loan terms, projected payments, and closing costs provided after a mortgage application is received.
Loan Modification
A permanent change to one or more existing loan terms intended to make repayment more manageable or resolve delinquency.
Loan Officer
A mortgage professional who helps borrowers evaluate financing options, complete applications, and move through the loan process.
Loan Origination
The process of creating a new mortgage, from application through underwriting, approval, closing, and funding.
Loan Program
A defined set of mortgage eligibility, documentation, pricing, and repayment requirements.
Loan Term
The length of time scheduled for repayment of a mortgage, such as 15, 20, or 30 years.
Loan-to-Value Ratio (LTV)
The loan amount divided by the property's value or purchase price, as determined by the applicable loan guidelines.
Lock Extension
An additional period added to an existing interest-rate lock, sometimes involving a fee or pricing adjustment.
Margin
A fixed percentage added to an index to determine the fully indexed rate on an adjustable-rate mortgage.
Market Value
The estimated amount a property would sell for in an open and competitive market under typical conditions.
Maturity Date
The date on which the remaining principal and other amounts due under a loan must be fully paid.
Mortgage
A loan secured by real property, or the legal instrument creating the lender's security interest, depending on state law and context.
Mortgage Broker
A licensed intermediary who works with multiple lenders to help borrowers obtain mortgage financing.
Mortgage Insurance
Insurance protecting the lender or loan guarantor against certain losses if the borrower defaults.
Mortgage Insurance Premium (MIP)
The upfront and/or annual mortgage-insurance charge associated with most FHA loans.
Mortgage Note
The borrower's written promise to repay the loan according to specified terms.
Negative Amortization
An increase in a loan balance that occurs when scheduled payments are insufficient to cover all interest due.
Non-Occupant Co-Borrower
A co-borrower who signs for the mortgage but does not intend to occupy the property as a primary residence.
Non-Qualified Mortgage (Non-QM)
A mortgage that does not meet the federal definition of a Qualified Mortgage but may still be responsibly underwritten using alternative documentation or features.
Notice of Right to Cancel
A disclosure describing a consumer's right to rescind certain refinance or home-equity transactions within a specified period.
Occupancy
The intended use of a property as a primary residence, second home, or investment property.
Origination Charge
A lender or broker charge for services involved in arranging, processing, or underwriting a mortgage.
PITI
An abbreviation for principal, interest, taxes, and insurance, commonly used to describe the core components of a monthly housing payment.
PITI Reserves
Funds verified after closing and measured by the number of months of principal, interest, taxes, insurance, and sometimes association dues they could cover.
Points
Fees expressed as a percentage of the loan amount; points may include discount points or other percentage-based charges.
Pre-Approval
A lender's conditional assessment of a borrower's ability to qualify based on reviewed financial information, subject to final underwriting and property approval.
Prepaid Interest
Interest collected at closing for the period between funding and the start of the first full payment cycle.
Prepaid Items
Amounts collected in advance at closing for expenses such as interest, taxes, homeowners insurance, and escrow deposits.
Prepayment Penalty
A charge that may apply under certain loan terms if a borrower pays off all or part of a mortgage early.
Prequalification
An initial estimate of possible borrowing capacity based on information provided by the consumer, often with limited or no documentation review.
Primary Residence
The home a borrower intends to occupy as their principal dwelling.
Principal
The amount borrowed or the unpaid balance of a loan, excluding interest and most fees.
Private Mortgage Insurance (PMI)
Mortgage insurance generally required on certain conventional loans with higher loan-to-value ratios.
Processing
The stage in which loan documents are collected, reviewed, organized, and prepared for underwriting.
Property Taxes
Taxes assessed by local government authorities based on the value or classification of real property.
Qualified Mortgage (QM)
A mortgage meeting federal standards intended to limit risky loan features and support a lender's ability-to-repay determination.
Rate-and-Term Refinance
A refinance primarily used to change the interest rate, loan term, or both without taking significant equity out in cash.
Rate Cap
A limit on how much an adjustable mortgage rate can increase at the first adjustment, during later adjustments, or over the life of the loan.
Rate Lock
An agreement to hold a specified mortgage interest rate and pricing for a defined period, subject to stated conditions.
Real Estate Settlement Procedures Act (RESPA)
A federal law governing mortgage settlement practices, disclosures, servicing, escrow accounts, and certain referral-fee arrangements.
Refinance
The replacement of an existing mortgage with a new loan.
Reserves
Verified assets remaining after closing that can be used to cover future housing payments or other obligations.
Rescission Period
The period during which a consumer may cancel certain refinance or home-equity transactions secured by a primary residence.
Second Home
A property occupied by the borrower for part of the year that meets applicable loan-program requirements and is not primarily a rental property.
Seller Concession
An amount the seller agrees to contribute toward a buyer's eligible closing costs, prepaid items, or rate buydown, subject to program limits.
Servicer
The company that collects mortgage payments, manages escrow accounts, provides statements, and handles other day-to-day loan administration.
Servicing Transfer
The transfer of responsibility for collecting payments and administering a mortgage from one servicer to another.
Subordination Agreement
An agreement establishing the priority of liens, often allowing an existing junior lien to remain behind a new first mortgage.
Survey
A professional drawing or report showing property boundaries, improvements, easements, and certain other land features.
Temporary Buydown
An arrangement that uses funds paid at closing to reduce the borrower's effective payment rate for an initial period.
Termite Inspection
An inspection for wood-destroying insects or related damage that may be required by the contract, lender, appraiser, or loan program.
Title
The legal rights of ownership in real property.
Title Commitment
A title company's preliminary statement of the conditions under which it expects to issue title insurance.
Title Insurance
Insurance protecting an owner or lender against covered title defects, liens, or ownership disputes.
Truth in Lending Act (TILA)
A federal law requiring standardized consumer credit disclosures and regulating certain mortgage lending practices.
Underwriting
The lender's evaluation of the borrower, property, documentation, and loan terms to determine whether the loan meets applicable requirements.
Underwriting Condition
A requirement that must be satisfied before a loan can receive final approval or proceed to closing.
United States Department of Agriculture (USDA) Loan
A mortgage guaranteed by the USDA for eligible borrowers purchasing qualifying properties in designated areas.
Upfront Mortgage Insurance Premium (UFMIP)
The one-time FHA mortgage-insurance premium charged at closing and commonly financed into the loan amount.
VA Funding Fee
A charge on most VA-backed loans that helps support the program and may be financed, reduced, or waived depending on eligibility.
VA Loan
A mortgage guaranteed by the U.S. Department of Veterans Affairs for eligible service members, veterans, and certain surviving spouses.
VA Interest Rate Reduction Refinance Loan (IRRRL)
A streamlined refinance option for eligible existing VA loans, commonly called a VA streamline refinance.
Verification of Deposit (VOD)
Documentation from a financial institution confirming account ownership, balances, and sometimes account history.
Verification of Employment (VOE)
Documentation or confirmation used to verify a borrower's current or prior employment and income.
Verification of Rent (VOR)
Documentation confirming a borrower's rental payment history.
Zero-Down Loan
A mortgage that permits eligible borrowers to finance the full purchase price without a down payment, subject to program requirements.
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