A
Adjustable-Rate Mortgage (ARM)
A mortgage with an interest rate that starts fixed for a set period (e.g. 5 or 7 years) then adjusts periodically based on a market index.
Amortization
The process of paying off a loan through regular payments, where each payment covers interest first and increasingly more principal over time.
Annual Percentage Rate (APR)
The yearly cost of a loan including interest rate plus most lender fees, expressed as a percentage — useful for comparing the true cost between lenders.
Appraisal
A licensed professional's estimate of a home's market value, required by lenders to confirm the property is worth the loan amount.
Assumable Mortgage
A mortgage that allows a buyer to take over the seller's existing loan, including its rate and terms, subject to lender approval.
B
Balloon Payment
A large lump-sum payment due at the end of certain loan terms, after smaller regular payments throughout the loan.
Bridge Loan
A short-term loan used to cover the gap between buying a new home and selling your current one.
C
Cash-Out Refinance
Refinancing your mortgage for more than you owe and taking the difference in cash, using your home equity.
Closing Costs
Fees paid to finalize a mortgage, typically 2–5% of the loan amount, including lender fees, title insurance, and prepaid taxes/insurance.
Closing Disclosure
A legally required document showing the final terms and costs of your loan, provided at least 3 business days before closing.
Conforming Loan
A conventional mortgage that meets Fannie Mae/Freddie Mac size and underwriting limits, allowing it to be sold on the secondary market.
Contingency
A condition in a purchase offer (e.g. financing, inspection, appraisal) that must be met or the buyer can walk away without penalty.
Conventional Loan
A mortgage not insured or guaranteed by the federal government, typically requiring stronger credit than FHA loans.
Credit Score
A three-digit number summarizing your creditworthiness, used by lenders to set your interest rate and eligibility.
D
Debt-to-Income Ratio (DTI)
The percentage of your gross monthly income that goes toward debt payments, a key factor lenders use to determine how much you can borrow.
Deed
The legal document that transfers ownership of a property from seller to buyer.
Discount Points
Optional upfront fees paid at closing to reduce your interest rate; one point typically costs 1% of the loan amount.
Down Payment
The portion of the home price you pay upfront in cash, with the rest financed through the mortgage.
E
Earnest Money
A deposit made with an offer to show you're serious about buying, held in escrow and applied toward closing costs or the down payment.
Equity
The difference between your home's current market value and what you still owe on the mortgage.
Escrow
A neutral third-party account that holds funds (like earnest money or, ongoing, property tax and insurance payments) until conditions are met.
F
FHA Loan
A mortgage insured by the Federal Housing Administration, allowing lower credit scores and down payments as low as 3.5%.
Fixed-Rate Mortgage
A mortgage where the interest rate stays the same for the entire loan term, keeping principal-and-interest payments constant.
Foreclosure
The legal process by which a lender repossesses a home after the borrower fails to make payments.
H
Hazard Insurance
Insurance covering damage to your home from fire, storms, and similar events; usually part of a standard homeowners policy.
HOA Fee
A recurring fee paid to a homeowners association for shared amenities and maintenance in some communities.
Home Equity Line of Credit (HELOC)
A revolving credit line secured by your home equity, letting you borrow and repay repeatedly up to a limit.
Homeowners Insurance
A policy protecting your home and belongings against damage, theft, and liability; usually required by lenders.
I
Impound Account
Another name for an escrow account used to collect and pay property taxes and insurance on your behalf.
Interest Rate
The percentage charged annually on your loan balance, before fees — the core cost of borrowing.
J
Jumbo Loan
A mortgage that exceeds conforming loan limits, typically requiring stronger credit and a larger down payment.
L
Lien
A legal claim against a property, such as a mortgage, that must be resolved before the property can be sold with clear title.
Loan Estimate
A standardized document lenders provide within 3 days of application, showing estimated rate, payment, and closing costs for comparison shopping.
Loan-to-Value Ratio (LTV)
The loan amount divided by the home's appraised value, expressed as a percentage — lower LTV generally means better rates and no PMI.
Lock-in Period
The window during which your quoted interest rate is guaranteed, typically 30–60 days, protecting you from rate changes before closing.
M
Mortgage Insurance (PMI/MIP)
Insurance that protects the lender (not you) when your down payment is below 20%; PMI on conventional loans, MIP on FHA loans.
Mortgagee
The lender in a mortgage transaction.
Mortgagor
The borrower in a mortgage transaction.
O
Origination Fee
A fee charged by the lender for processing a new loan application, usually a percentage of the loan amount.
P
Points
See Discount Points — upfront fees paid to reduce your interest rate.
Pre-Approval
A lender's conditional commitment to lend you a specific amount, based on verified income, assets, and credit.
Pre-Qualification
An informal, non-verified estimate of what you might be able to borrow, based on self-reported information.
Principal
The amount you originally borrowed (or currently owe), separate from interest.
Private Mortgage Insurance (PMI)
Required insurance on conventional loans with less than 20% down, typically 0.5–1.5% of the loan annually until sufficient equity is reached.
Property Tax
An annual tax based on your home's assessed value, usually collected monthly through escrow and paid to your local government.
R
Rate Lock
An agreement guaranteeing your interest rate for a set period while your loan is processed.
Refinance
Replacing your current mortgage with a new one, often to get a lower rate, change the term, or cash out equity.
S
Second Mortgage
An additional loan secured by your home, taken out on top of your primary mortgage (e.g. a HELOC or home equity loan).
Servicer
The company that manages your mortgage account after closing — collecting payments and managing escrow — which may differ from your original lender.
Short Sale
A sale where the home sells for less than what's owed on the mortgage, with lender approval, often used to avoid foreclosure.
T
Title
Legal ownership of a property, along with the rights that come with it.
Title Insurance
Insurance protecting against losses from defects in the property's title, such as unknown liens or ownership disputes.
Title Search
A review of public records to confirm the seller has clear legal ownership before a sale closes.
Truth in Lending Act (TILA)
A federal law requiring lenders to disclose loan terms and costs clearly, including APR, so borrowers can compare offers.
U
Underwriting
The lender's process of verifying your income, assets, debts, and the property details before final loan approval.
USDA Loan
A mortgage backed by the U.S. Department of Agriculture, offering 0% down for eligible buyers in designated rural and suburban areas.
V
VA Loan
A mortgage guaranteed by the Department of Veterans Affairs, offering 0% down and no PMI for eligible veterans and service members.
Y
Yield Spread Premium
A payment a lender may earn for selling a loan at a higher interest rate than the borrower qualified for — now heavily restricted by regulation.
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