Mortgage Glossary

Mortgage language isn't hard — it's just unfamiliar. Here are the terms you'll actually run into, defined the way we'd explain them across a desk.

Amortization

The schedule by which a loan is paid off through regular payments. Early payments are mostly interest; over time the mix shifts toward principal, until the balance hits zero.

Appraisal

An independent professional opinion of a property's market value, required by the lender because the property secures the loan. It is a valuation, not an inspection. See appraisals explained.

APR (Annual Percentage Rate)

A rate-like figure that folds certain loan costs into the interest rate to aid comparison. Useful but imperfect: it assumes you keep the loan to maturity, which most people don't. Compare loans on full costs and your real timeline, not APR alone.

ARM (Adjustable-Rate Mortgage)

A loan whose rate is fixed for an initial period, then adjusts periodically based on a market index plus a set margin, within defined caps. Can suit clients with a shorter expected hold — understand the caps and adjustment schedule first.

Asset depletion

A qualifying method that converts documented assets into an equivalent monthly income figure for underwriting purposes. Useful for clients with substantial savings or investments but modest paper income — often retirees.

AUS (Automated Underwriting System)

Software that evaluates a full loan file against program guidelines and renders a recommendation. A tool that informs the human underwriter's decision — not a verdict machine.

Bank-statement loan

A non-QM program that qualifies self-employed clients using deposits shown on bank statements rather than tax returns. Built for profiles where tax-return income understates real cash flow.

Break-even

The point at which an upfront cost has paid for itself through monthly savings — how many months it takes discount points or a refinance to recover their cost. If you won't hold the loan past break-even, the upfront cost isn't worth it.

Cash-out refinance

Replacing your current mortgage with a larger one and taking the difference in cash — converting home equity into usable funds. Compare with rate-and-term refinance below.

Closing costs

The one-time costs of creating the loan and transferring the property: lender charges, third-party services (appraisal, title, attorney), government fees, and prepaids. Itemized on your Loan Estimate. See closing costs explained.

Closing Disclosure (CD)

The final, official statement of your loan terms and costs, delivered before closing so you can compare it against your Loan Estimate line by line before you sign.

Comparable sales (comps)

Recently sold properties similar to the subject home in location, size, and condition, which an appraiser uses to derive value. The evidence base of an appraisal.

Conforming loan

A conventional loan that fits within the loan-size limits and guidelines set for purchase by Fannie Mae and Freddie Mac. The limits adjust over time and vary by county — we always check the current figure rather than quote one.

DSCR (Debt Service Coverage Ratio)

An investor-loan qualifying method comparing a rental property's income to its own payment. The property qualifies on its cash flow, rather than the client qualifying on personal income.

DTI (Debt-to-Income ratio)

Your monthly debt obligations as a percentage of gross monthly income — the core affordability measure in underwriting, with specific rules about what counts on each side. See DTI explained.

Earnest money

The deposit made with a purchase offer to show good faith, held in trust and credited toward your costs at closing. The contract's contingencies govern its return if the purchase falls through.

Entitlement (VA)

The dollar amount of guarantee the Department of Veterans Affairs extends on behalf of an eligible veteran — the mechanism that makes zero-down VA loans possible. Entitlement can be partially used, restored, and in some cases split across more than one loan.

Escrow

The account your servicer maintains to pay property taxes and insurance, funded by a slice of each monthly payment. The same word also describes the neutral holding of funds during a transaction.

Funding fee

The one-time fee on VA loans that sustains the loan guarantee program in place of monthly mortgage insurance. Varies with down payment and prior use; waived entirely for certain veterans, including many receiving disability compensation. See the VA funding fee explained.

Gift funds

Down-payment or closing money given (not lent) to a client, typically by family. Fully workable under program rules, with specific documentation showing the source and that no repayment is expected.

Gross-up

An underwriting adjustment that increases certain non-taxable income (some benefits, for example) for qualifying purposes, so it compares fairly against taxable income. One of the few rules that works in the client's favor by default.

HELOC (Home Equity Line of Credit)

A revolving credit line secured by home equity — draw, repay, and draw again during the draw period, usually at a variable rate. A flexible second-position tool, distinct from a fixed home-equity loan.

IRRRL (Interest Rate Reduction Refinance Loan)

The VA's streamlined refinance — an existing VA loan into a new one at improved terms, with reduced documentation and a lighter funding fee. Sometimes called a "VA streamline."

Jumbo loan

A loan larger than the conforming limit for its county, so it can't be sold to Fannie Mae or Freddie Mac. Priced and underwritten by individual lenders, typically with more emphasis on reserves and documentation.

Lender credit

Money the lender contributes toward your closing costs in exchange for a somewhat higher rate — the mirror image of points. Reduces cash needed at closing at the price of a higher payment.

Loan Estimate (LE)

The standardized disclosure of a loan's terms and costs, provided shortly after application — standardized precisely so you can compare offers line by line. You're entitled to one.

Lock (rate lock)

An agreement fixing your interest rate for a set window while your loan closes. Protects you from market moves during the file; locks have expiration dates, so timeline and lock period need to match.

LTV (Loan-to-Value)

The loan amount as a percentage of the property's value — the lower of price or appraised value. LTV drives program eligibility, pricing, and whether mortgage insurance applies. CLTV is the same measure counting all liens together.

MI / PMI / MIP (Mortgage insurance)

Insurance that protects the lender on lower-down-payment loans. PMI is the conventional version, removable once equity conditions are met; MIP is FHA's version, with its own upfront and monthly components and duration rules. It insures the lender — but it's also what makes low-down-payment lending available at all.

Non-QM

Loans outside the "qualified mortgage" documentation framework — bank-statement, DSCR, asset-depletion, and similar programs. Not a euphemism for weak lending; a documentation alternative for strong profiles that don't fit standard paperwork.

PITI

Principal, Interest, Taxes, and Insurance — the four components of a full monthly housing payment. Add HOA dues and mortgage insurance where they apply; underwriting always evaluates the complete payment, not just principal and interest.

Points (discount points)

Upfront money paid to lower your interest rate, priced as a percentage of the loan amount. Whether points make sense is pure break-even math against how long you'll keep the loan — a choice to calculate, not a default.

Pre-approval

A lender's written statement that your credit, income, and assets have actually been reviewed and support a given loan amount — meaningfully stronger than a pre-qualification's unverified estimate. See getting pre-approved.

Prepaids

Closing-table items that aren't fees at all — your own future expenses paid in advance: upfront interest, the first insurance premium, and the initial escrow deposit. Distinguishing prepaids from true costs is half of understanding a Loan Estimate.

Principal

The amount you actually borrowed and still owe. Each payment's principal portion is the part that builds equity.

Rate-and-term refinance

Replacing your mortgage with a new one to improve the rate, the term, or both — without taking cash out. The "did the math change in my favor?" refinance.

Reserves

Money you still have after closing, measured in months of housing payments. A genuine strength in underwriting and in life — see why draining them is one of the biggest buyer mistakes.

Seasoning

The time money or an account must be in place before underwriting treats it as settled — how long funds have been in your account, or how long since a credit event or prior loan.

Seller concessions

Costs the seller agrees to pay on the buyer's behalf, negotiated in the contract and capped by program rules. Can cover closing costs or fund a rate buydown — often worth more than an equivalent price cut.

Title insurance

Insurance against defects in the property's ownership history — undisclosed liens, errors, competing claims. A lender's policy protects the loan; an owner's policy protects you as long as you own the home.

Trigger leads

When a mortgage credit pull prompts the bureaus to sell your information to other lenders, who then call and text you — sometimes within hours. Legal, aggressive, and not from us. The industry's official prescreen opt-out can limit them; ask us how before you apply.

Tri-merge

A credit report combining all three bureaus — Equifax, Experian, and TransUnion — producing three scores, from which mortgage convention uses the middle. Why your app's single-bureau score differs is covered in your free score isn't your mortgage score.

Underwriting

The evaluation of the complete file — credit, income, assets, and property — against program guidelines, culminating in the loan decision. See how the process works.

Wholesale lender

A lender that funds loans sourced through independent brokers rather than through its own retail branches. Wholesale pricing is the market a broker shops on your behalf — the structural difference explained in broker vs. bank.