Mortgage Glossary: Every Loan Term, in Plain English

Rates, pricing, and cost terms

• Annual percentage rate (APR) — a federally defined measure that combines the note rate with certain financed loan costs, expressed as a yearly rate. It is disclosed on your Loan Estimate and is usually higher than the note rate.
• Note rate — the interest rate stated on the promissory note and used to calculate your principal and interest payment.
• Discount points — a prepaid fee, quoted as a percentage of the loan amount, paid at closing to obtain a lower note rate.
• Lender credit — money the lender applies toward your closing costs, typically in exchange for a higher note rate.
• Rate lock — a commitment that holds a specific rate and pricing for a defined number of days, subject to the lock agreement's terms.
• Temporary buydown — funds placed in an escrow account to reduce the payment for the first one to three years of a loan; the note rate itself does not change.
• Lender-paid compensation — the compensation paid for arranging and originating the loan. On eligible residential transactions ours is generally a 1.5% lender-paid structure — the lender pays it, so you don't pay us a separate broker fee.
• Par pricing — pricing at which no discount points are paid and no lender credit is received.

Qualification and underwriting terms

• Loan-to-value (LTV) — the loan amount divided by the property value. Lower LTV generally means better pricing and fewer mortgage insurance requirements.
• Combined loan-to-value (CLTV) — all liens on the property divided by value, including a second mortgage or home equity line.
• Debt-to-income ratio (DTI) — total monthly debt obligations divided by gross monthly income, expressed as a percentage.
• Automated underwriting system (AUS) — the agency software that evaluates a file and returns findings and documentation requirements.
• Manual underwriting — human review under written guidelines when a file cannot receive automated approval.
• Reserves — liquid assets remaining after closing, measured in months of housing payment.
• Residual income — income remaining after housing and other obligations, a required test on VA loans.
• Compensating factors — documented strengths such as reserves, long job tenure, or a low payment shock that support approval despite a weakness elsewhere.
• Ability to repay — the federal requirement that a lender make a reasonable, good-faith determination the borrower can repay the loan.
• Pre-qualification — an early estimate based on information you provide.
• Pre-approval — a written decision issued after review of documentation and credit.

Payment and servicing terms

• PITI — principal, interest, taxes, and insurance, the four standard components of a housing payment.
• Escrow account — an account the servicer maintains to collect and pay property taxes and insurance premiums.
• Escrow analysis — the annual review that adjusts your escrow portion as tax and insurance bills change.
• Amortization — the process by which scheduled payments retire a loan to zero over its term.
• Recast — a servicer re-amortizing the loan on a reduced balance after a large principal payment, keeping the same rate and remaining term.
• Servicer — the company that collects payments, manages escrow, and handles your account after closing.
• Forbearance — a temporary agreement to pause or reduce payments, with the missed amounts handled under a later plan.
• Prepayment penalty — a charge for paying a loan off early. Most conforming and government loans made today do not have one.

Mortgage insurance terms

• Private mortgage insurance (PMI) — insurance protecting the lender on a conventional loan with less than 20% down, cancellable under federal rules.
• Mortgage insurance premium (MIP) — FHA's insurance, charged upfront and annually under FHA program rules.
• Lender-paid mortgage insurance — coverage built into the interest rate rather than billed separately; it does not cancel.
• Guarantee fee — USDA's upfront and annual fees on Guaranteed loans.
• VA funding fee — a one-time fee on most VA loans, with statutory exemptions for certain borrowers.

Property, title, and appraisal terms

• Appraisal — an independent opinion of value prepared by a licensed or certified appraiser.
• Appraisal contingency — a contract provision protecting the buyer if the appraised value comes in below the contract price.
• Comparable sales — recent sales of similar properties used to support the appraised value.
• Title insurance — coverage against defects in the ownership history; a lender's policy protects the lender and an owner's policy protects you.
• Title commitment — the document listing what must be resolved before the title policy can issue.
• Survey — a drawing showing boundaries, improvements, and encroachments.
• Deed — the instrument that transfers ownership of real property.
• Lien — a legal claim against the property securing a debt.
• Escrow (settlement) — the neutral third-party process that holds funds and documents until closing conditions are met.
• Homeowners association (HOA) — an organization that governs a community and charges dues, which underwriters count in your housing expense.

Disclosure and process terms

• Loan Estimate — the standardized three-page form disclosing your estimated rate, payment, and closing costs, generally provided within three business days of application.
• Closing Disclosure — the final five-page form showing actual terms and costs, generally provided at least three business days before consummation.
• TRID — the integrated disclosure rule that created the Loan Estimate and Closing Disclosure and set the tolerance rules for cost changes.
• Tolerance — the limit on how much a disclosed cost may increase at closing, by category.
• Changed circumstance — a documented event that allows a lender to reissue a Loan Estimate with revised costs.
• Right of rescission — the three-business-day cancellation right on most refinances of a primary residence.
• Clear to close — the point at which underwriting conditions are satisfied and closing can be scheduled.
• Funding — the disbursement of loan proceeds, which may occur at or after signing depending on state practice.

Loan type terms

• Conventional loan — a loan not insured or guaranteed by a government agency, typically following Fannie Mae or Freddie Mac guidelines.
• Conforming loan — a conventional loan within the applicable FHFA loan limit.
• Jumbo loan — a loan exceeding the conforming limit for the county.
• FHA loan — a mortgage insured by the Federal Housing Administration.
• VA loan — a mortgage guaranteed by the Department of Veterans Affairs for eligible service members, veterans, and surviving spouses.
• USDA loan — a Rural Development guaranteed loan for eligible rural and suburban areas with income limits.
• Adjustable-rate mortgage (ARM) — a loan with a fixed initial period followed by periodic rate adjustments subject to caps.
• Non-QM loan — a loan outside the qualified mortgage definition, often used for alternative income documentation.
• DSCR loan — an investor loan qualified on the property's rental cash flow rather than personal income.
• HELOC — a revolving line of credit secured by home equity, typically with a variable rate.
• Cash-out refinance — a new first mortgage larger than the current balance, with the difference paid to the borrower.
• Rate-and-term refinance — a refinance that changes rate or term without meaningful cash back.

Definitions here are educational summaries, not legal advice, and program rules change. Your loan documents and disclosures control.