Mortgage glossary
Mortgages are mostly paperwork, math, and a few intimidating words. Here are the words, in plain English. No jargon, no sales pitch.
- Adjustable-Rate Mortgage (ARM)
- A loan whose interest rate can change over time after an initial fixed period (e.g., 5/1 ARM), based on a market index plus a margin.
- Amortization
- The schedule by which your loan is paid off over time. Early payments go mostly to interest; later payments go mostly to principal.
- Annual Percentage Rate (APR)
- The yearly cost of a loan including the interest rate plus most fees, expressed as a percentage. Useful for comparing offers apples-to-apples.
- Appraisal
- A licensed appraiser's professional estimate of a home's market value, required by lenders to confirm the property is worth the loan amount.
- Closing Costs
- Fees paid at closing to finalize the loan — typically 2–5% of the loan amount, covering things like origination, title, appraisal, and taxes.
- Conforming Loan
- A loan that meets the size and guidelines set by Fannie Mae and Freddie Mac, including the annual conforming loan limit.
- Conventional Loan
- A mortgage not backed by a government program (FHA, VA, USDA). Often requires stronger credit but can have lower long-term costs.
- Debt-to-Income Ratio (DTI)
- Your monthly debt payments divided by gross monthly income. Lenders use it to judge how much you can comfortably borrow.
- Discount Points
- Optional upfront fees you pay to lower your interest rate. One point equals 1% of the loan amount.
- Down Payment
- The portion of the purchase price you pay upfront. A larger down payment lowers your loan amount and can remove PMI.
- Earnest Money
- A good-faith deposit you make when your offer is accepted, applied toward your down payment or closing costs at closing.
- Equity
- The portion of your home you actually own — the home's value minus what you still owe on the mortgage.
- Escrow
- An account your lender uses to collect and pay property taxes and insurance on your behalf, bundled into your monthly payment.
- FHA Loan
- A mortgage insured by the Federal Housing Administration, allowing down payments as low as 3.5% with more flexible credit requirements.
- Fixed-Rate Mortgage
- A loan with an interest rate that stays the same for the entire term, keeping your principal-and-interest payment predictable.
- Foreclosure
- The legal process by which a lender takes back a property after the borrower fails to make payments.
- HELOC
- A Home Equity Line of Credit — a revolving credit line secured by your home's equity that you can draw from as needed.
- Home Equity Loan
- A lump-sum second mortgage borrowed against your equity, repaid at a fixed rate over a set term.
- Jumbo Loan
- A mortgage that exceeds the conforming loan limit, used for higher-priced homes and typically requiring stronger credit and reserves.
- Loan Estimate
- A standardized three-page form lenders must provide within three business days of your application, detailing rate, payments, and costs.
- Loan-to-Value Ratio (LTV)
- The loan amount divided by the home's value. Lower LTV (bigger down payment) usually means better terms and no PMI.
- Mortgage Broker
- A licensed professional who shops multiple lenders on your behalf to find competitive loan options — the heart of the LowestMortgage marketplace.
- Mortgage Insurance (PMI/MIP)
- Insurance that protects the lender if you default. PMI applies to conventional loans under 20% down; MIP applies to FHA loans.
- NMLS ID
- A unique identifier from the Nationwide Multistate Licensing System for licensed mortgage professionals — use it to verify a broker.
- Origination Fee
- A fee charged by the lender or broker for processing your loan, usually expressed as a percentage of the loan amount.
- PITI
- The four parts of a typical monthly payment: Principal, Interest, Taxes, and Insurance.
- Pre-Approval
- A lender's conditional commitment to lend a specific amount based on a review of your finances — stronger than a pre-qualification.
- Pre-Qualification
- An informal estimate of how much you might borrow, based on self-reported information. A useful first step before pre-approval.
- Principal
- The amount you borrow (or still owe), not counting interest.
- Rate Lock
- A lender's guarantee to hold a specific interest rate for a set period while your loan is processed.
- Refinance
- Replacing your current mortgage with a new one — usually to lower the rate, change the term, or tap equity (cash-out refinance).
- Title Insurance
- Protects you and the lender against problems with the property's ownership history, such as liens or competing claims.
- Underwriting
- The lender's process of verifying your finances and the property to decide whether to approve the loan.
- USDA Loan
- A zero-down mortgage backed by the U.S. Department of Agriculture for eligible buyers in qualifying rural and suburban areas.
- VA Loan
- A mortgage backed by the Department of Veterans Affairs offering $0-down financing and no PMI for eligible veterans and service members.
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