Amortization

The process of paying off a loan through regular scheduled payments over time. Each payment covers both interest and a portion of the principal balance. Early payments are weighted more toward interest; over time, a greater share goes toward reducing the principal.

APR (Annual Percentage Rate)

The total yearly cost of a loan expressed as a percentage, including the interest rate plus most lender fees (origination, mortgage insurance, etc.). APR is broader than the interest rate alone and provides a more complete comparison tool across loan offers.

Appraisal

An independent assessment of a property’s market value conducted by a licensed appraiser. Lenders require appraisals to ensure the property value supports the loan amount being requested.

Assumption

When a buyer takes over the seller’s existing mortgage, including its remaining balance and terms. VA and FHA loans typically allow assumption; conventional loans generally do not.

Cash-Out Refinance

A refinance in which the new loan amount exceeds the existing mortgage balance, with the difference paid to the borrower in cash. Used to access home equity.

Closing Costs

Fees and expenses paid at or before closing, separate from the down payment. Typically include lender fees, title fees, escrow fees, appraisal, and prepaid items. Generally 2–5% of the loan amount.

Conforming Loan

A mortgage that meets the guidelines — including loan size limits — set by Fannie Mae and Freddie Mac. Loans above those limits are called jumbo loans.

DTI (Debt-to-Income Ratio)

The percentage of your gross monthly income that goes toward recurring debt obligations, including your projected housing payment. Most programs have DTI limits in the 43–50% range.

DSCR (Debt Service Coverage Ratio)

Used primarily for investment property loans. DSCR = gross rental income / total housing expense (PITIA). A DSCR of 1.0 means the property breaks even; above 1.0 means positive cash flow.

Escrow

An account held by a neutral third party to hold funds for property taxes and homeowners insurance. Your monthly mortgage payment typically includes an escrow contribution paid out to the taxing authority and insurer on your behalf.

FHA Loan

A mortgage insured by the Federal Housing Administration. Features lower down payment requirements and more flexible credit guidelines than conventional loans. Requires Mortgage Insurance Premium (MIP).

Fixed-Rate Mortgage

A mortgage with an interest rate that remains constant for the entire loan term, resulting in consistent monthly principal and interest payments.

HELOC (Home Equity Line of Credit)

A revolving line of credit secured by your home’s equity. You can draw, repay, and redraw funds during a set draw period. Interest is typically charged only on the outstanding balance.

HELOAN (Home Equity Loan)

A fixed-term, fixed-rate loan secured by your home’s equity, delivered as a lump sum. Sometimes called a second mortgage.

Jumbo Loan

A mortgage that exceeds conforming loan limits established by the FHFA. Jumbo loans require stricter qualifications and typically higher credit scores and down payments.

Loan Estimate (LE)

A standardized three-page form provided by the lender within three business days of receiving a mortgage application. It details estimated loan terms, monthly payment, and closing costs.

LTV (Loan-to-Value Ratio)

The ratio of the loan amount to the appraised value or purchase price of the property (whichever is lower), expressed as a percentage. Higher LTV generally means more risk and may require mortgage insurance.

Non-QM (Non-Qualified Mortgage)

A loan that doesn’t meet the CFPB’s definition of a Qualified Mortgage. Non-QM loans use alternative documentation or underwriting criteria for borrowers with non-traditional income, recent credit events, or unique financial profiles.

PITI (Principal, Interest, Taxes, Insurance)

The four components of a typical monthly mortgage payment. Sometimes expanded to PITIA to include HOA dues (Association).

PMI (Private Mortgage Insurance)

Insurance required by conventional lenders when the borrower’s down payment is less than 20% (LTV above 80%). PMI protects the lender in case of default. Can typically be removed once LTV drops to 80%.

Points (Discount Points)

An upfront payment to a lender to reduce the interest rate on a loan. One point = 1% of the loan amount. Buying points may make sense if you plan to keep the loan long enough for the rate savings to exceed the upfront cost.

Pre-Approval

A formal evaluation of a borrower’s credit, income, and assets by a lender, resulting in a conditional commitment to lend up to a specific amount. Stronger than a pre-qualification; typically requires a credit pull and documentation review.

Prepayment Penalty

A fee charged by some lenders if the borrower pays off the loan before a specified period. Common in some Non-QM and DSCR products. Always confirm whether a prepayment penalty applies to your loan.

Rate Lock

A lender’s commitment to hold a specific interest rate for a defined period (typically 15–45 days) while your loan is processed and closed.

VA Loan

A mortgage guaranteed by the U.S. Department of Veterans Affairs for eligible veterans, active-duty service members, and surviving spouses. Key benefits include no down payment required in most cases and no private mortgage insurance.