Mortgage Glossary

Every mortgage term,
explained plainly.

79 definitions covering loan types, qualification, the closing process, fees, legal terms, and market concepts — written for real people, not loan officers who already know everything.

79 terms
Market & Rates
Adjustable-Rate Mortgage (ARM)
A mortgage with an interest rate that is fixed for an initial period, then adjusts periodically based on a market index.
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Market & Rates
Amortization
The process of gradually paying off a loan through regular scheduled payments that cover both principal and interest.
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Costs & Fees
Annual Percentage Rate (APR)
The true cost of borrowing expressed as a yearly rate — includes the interest rate plus most fees, making it more useful for comparing loans than the interest rate alone.
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Loan Process
Appraisal
An independent professional assessment of a property's market value, required by lenders to confirm the home is worth the loan amount.
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Loan Types
Assumable Mortgage
A mortgage that can be transferred from the seller to the buyer, allowing the buyer to take over the seller's existing loan terms and interest rate.
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Loan Types
Balloon Payment
A large lump-sum payment due at the end of a loan term, covering the remaining principal balance all at once.
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Loan Types
Bridge Loan
A short-term loan that helps homebuyers purchase a new home before selling their existing one.
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Market & Rates
Buydown
A financing arrangement where upfront money is paid to temporarily or permanently reduce the mortgage interest rate.
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Loan Process
Cash-Out Refinance
Refinancing a mortgage for more than you owe and pocketing the difference as cash, using your home equity.
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Loan Process
Closing
The final step of the home purchase process, where legal documents are signed, funds are disbursed, and ownership transfers to the buyer.
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Costs & Fees
Closing Costs
Fees and expenses paid at closing beyond the down payment, typically 2–5% of the loan amount.
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Legal
Closing Disclosure
A standardized 5-page document providing final details about your mortgage — including loan terms, projected payments, and closing costs — delivered at least 3 days before closing.
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Qualifying
Co-Borrower
A second person who applies for a mortgage alongside the primary borrower, sharing equal responsibility for repayment and appearing on the loan and title.
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Qualifying
Conforming Loan
A mortgage that meets Fannie Mae and Freddie Mac's guidelines for purchase, including a maximum loan size that is adjusted annually.
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Loan Types
Conventional Loan
A mortgage not backed by a government agency, typically requiring stronger credit and a down payment of 3–20%.
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Qualifying
Credit Score
A three-digit number (300–850) that measures your creditworthiness based on payment history, debt levels, and credit history length.
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Qualifying
Debt-to-Income Ratio (DTI)
The percentage of your gross monthly income that goes toward debt payments — a key underwriting metric that determines how much you can borrow.
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Legal
Deed
The legal document that transfers ownership of real property from one party to another, recorded in county public records.
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Legal
Deed of Trust
A mortgage security instrument used in many states where a neutral third-party trustee holds legal title until the loan is fully repaid.
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Loan Process
Default
Failure to meet the terms of a mortgage, most commonly by missing payments — triggering lender remedies including foreclosure.
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Costs & Fees
Discount Points
Upfront fees paid to a lender at closing in exchange for a reduced interest rate — each point equals 1% of the loan amount.
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Costs & Fees
Down Payment
The upfront cash the buyer pays toward the purchase price — the difference between the sale price and the loan amount.
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Loan Types
DSCR Loan
A mortgage for investment properties where qualification is based on the property's rental income rather than the borrower's personal income.
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Loan Process
Earnest Money
A good-faith deposit from the buyer, submitted with a purchase offer, showing the seller the buyer is serious about completing the transaction.
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Market & Rates
Equity
The portion of a home's value you own outright — the difference between the property's market value and what you still owe on the mortgage.
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Loan Process
Escrow
A neutral third-party account that holds funds during a transaction — and also refers to the ongoing account that holds property taxes and insurance after closing.
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Legal
Fair Housing Act
A federal law prohibiting discrimination in housing transactions, including mortgage lending, based on race, color, religion, national origin, sex, disability, or familial status.
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Market & Rates
Fannie Mae
The Federal National Mortgage Association — a government-sponsored enterprise that buys conforming mortgages from lenders, providing liquidity to the housing market.
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Loan Types
FHA Loan
A government-backed mortgage insured by the Federal Housing Administration, with flexible credit and down payment requirements.
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Market & Rates
Fixed-Rate Mortgage
A mortgage with an interest rate that stays constant for the entire loan term, resulting in the same principal and interest payment every month.
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Costs & Fees
Flood Insurance
Separate insurance coverage for flood damage — required by lenders for properties in FEMA-designated high-risk flood zones and not included in standard homeowners policies.
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Loan Process
Forbearance
A temporary pause or reduction in mortgage payments, granted by the lender when a borrower faces financial hardship.
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Loan Process
Foreclosure
The legal process by which a lender takes possession of a property after the borrower fails to make mortgage payments.
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Market & Rates
Freddie Mac
The Federal Home Loan Mortgage Corporation — a government-sponsored enterprise similar to Fannie Mae that buys conforming mortgages and provides market liquidity.
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Qualifying
Gift Funds
Money given to a homebuyer by a family member or other eligible donor to help with the down payment or closing costs.
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Loan Types
HELOC
A Home Equity Line of Credit — a revolving line of credit secured by your home equity that you can draw from as needed.
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Loan Types
Home Equity Loan
A lump-sum loan secured by your home equity, with a fixed interest rate and fixed monthly payments.
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Market & Rates
Homeowners Association (HOA)
An organization in a planned community, condo, or subdivision that sets and enforces rules and collects fees to maintain common areas.
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Costs & Fees
Homeowners Insurance
Insurance that covers damage to your home and personal property from covered perils, required by all mortgage lenders.
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Legal
HUD
The US Department of Housing and Urban Development — the federal agency that oversees FHA loans, fair housing enforcement, and housing policy.
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Market & Rates
Interest Rate
The annual percentage the lender charges on the outstanding loan balance — the cost of borrowing the money, separate from fees.
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Loan Types
Jumbo Loan
A mortgage that exceeds conforming loan limits set by Fannie Mae and Freddie Mac, used for higher-value properties.
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Costs & Fees
Lender Credits
Money the lender provides to reduce your closing costs in exchange for a higher interest rate — the opposite of buying discount points.
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Legal
Lien
A legal claim against a property that must be satisfied before the property can be sold or refinanced free and clear.
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Legal
Loan Estimate
A standardized 3-page form the lender must provide within 3 days of receiving your loan application, showing estimated loan terms and closing costs.
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Costs & Fees
Loan Origination Fee
A lender charge for processing a new mortgage loan, typically 0.5–1% of the loan amount.
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Qualifying
Loan-to-Value Ratio (LTV)
The ratio of your loan amount to the property's appraised value — the higher the LTV, the more risk the lender takes on.
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Costs & Fees
MIP (Mortgage Insurance Premium)
The mortgage insurance required on FHA loans — includes an upfront premium (1.75%) and an annual premium paid monthly.
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Market & Rates
Mortgage Broker
A licensed intermediary who shops multiple lenders on your behalf to find the best loan terms — brokers don't lend money themselves.
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Legal
Mortgage Note (Promissory Note)
The legal document you sign at closing promising to repay the mortgage loan under the specified terms.
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Market & Rates
Mortgage Servicer
The company that manages your mortgage account day-to-day — collecting payments, managing escrow, handling payoffs, and administering delinquencies.
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Market & Rates
Negative Amortization
When monthly mortgage payments are insufficient to cover the interest due, causing the unpaid interest to be added to the loan balance.
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Legal
NMLS
The Nationwide Multistate Licensing System & Registry — the centralized system used to license and register mortgage loan originators across all US states.
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Loan Types
Non-QM Loan
A mortgage that doesn't meet the Consumer Financial Protection Bureau's Qualified Mortgage standards, offering flexible underwriting for non-traditional borrowers.
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Loan Process
Origination
The process of creating a new mortgage loan — from application through underwriting to funding.
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Loan Process
Owner Financing
A purchase arrangement where the seller acts as the lender, providing financing directly to the buyer instead of the buyer going through a bank.
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Loan Types
Piggyback Loan
Two loans taken out simultaneously — a primary mortgage and a second mortgage — often to avoid private mortgage insurance or jumbo loan rates.
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Market & Rates
PITI
The total monthly mortgage payment: Principal, Interest, Taxes, and Insurance — the full cost a lender uses to calculate your ability to repay.
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Costs & Fees
PMI (Private Mortgage Insurance)
Insurance required on conventional loans when the down payment is less than 20%, protecting the lender — not the borrower — if the loan defaults.
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Qualifying
Pre-Approval
A lender's conditional commitment to lend you a specific amount, based on a verified review of your credit, income, and assets.
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Qualifying
Pre-Qualification
An informal estimate of how much you may be able to borrow, based on self-reported income and debt information — no credit pull required.
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Costs & Fees
Prepayment Penalty
A fee charged by some lenders if you pay off your mortgage early — through a sale, refinance, or large extra payments.
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Market & Rates
Prime Rate
The benchmark interest rate that US banks charge their most creditworthy customers, closely tied to the federal funds rate and used as an index for HELOCs and ARMs.
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Market & Rates
Principal
The original loan amount borrowed — or the remaining balance still owed on the loan, separate from interest.
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Loan Process
Rate Lock
An agreement between the borrower and lender that guarantees a specific interest rate for a defined period, typically 30–60 days.
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Loan Process
Rate-and-Term Refinance
Refinancing a mortgage to get a lower interest rate, change the loan term, or both — without taking additional cash out.
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Qualifying
Reserve Requirements
Cash or liquid assets a lender requires you to have remaining after closing, typically measured in months of mortgage payments.
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Legal
RESPA
The Real Estate Settlement Procedures Act — a federal law that governs mortgage disclosures, prohibits kickbacks, and protects consumers in real estate settlements.
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Loan Types
Reverse Mortgage
A loan for homeowners 62 or older that converts home equity into cash, with no monthly payments required — the loan is repaid when the home is sold.
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Legal
SAFE Act
The Secure and Fair Enforcement for Mortgage Licensing Act — federal law requiring all mortgage loan originators to be licensed through NMLS.
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Loan Types
Second Mortgage
A loan taken out against your home while your original mortgage is still in place — it takes second priority in repayment if you default.
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Costs & Fees
Seller Concessions
A portion of the home's closing costs paid by the seller as part of the purchase agreement, reducing the buyer's cash needed at closing.
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Loan Process
Short Sale
Selling a home for less than what's owed on the mortgage, with the lender's approval, to avoid foreclosure.
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Legal
Title
Legal ownership of a property and the bundle of rights that come with it — verified and insured before a real estate transaction closes.
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Legal
Title Insurance
A one-time insurance premium paid at closing that protects the lender (and optionally the buyer) against losses from title defects discovered after closing.
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Legal
TRID
The TILA-RESPA Integrated Disclosure rule — mandating the standardized Loan Estimate and Closing Disclosure forms that all mortgage lenders must provide.
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Loan Process
Underwriting
The process by which a lender evaluates a loan application to decide whether to approve it, what rate to offer, and what conditions to attach.
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Loan Types
USDA Loan
A zero-down-payment mortgage for eligible buyers in rural and suburban areas, guaranteed by the US Department of Agriculture.
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Loan Types
VA Loan
A mortgage guaranteed by the Department of Veterans Affairs, available to eligible service members, veterans, and surviving spouses — with no down payment required.
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