Mortgage glossary, in plain English.

The terms you'll run into while financing a home — defined simply, without the jargon. Jump to a letter or skim the whole list.

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Adjustable-Rate Mortgage (ARM): A mortgage whose rate is fixed for an initial period (often 5, 7, or 10 years), then adjusts periodically based on a market index. Payments can rise or fall once the fixed period ends.
Amortization: The schedule by which your loan balance is paid down over time. Early payments go mostly toward interest; later payments go mostly toward principal.
Annual Percentage Rate (APR): The yearly cost of a loan including the interest rate plus certain fees, expressed as a percentage. APR is usually higher than the note rate and helps you compare offers on equal footing.
Appraisal: An independent professional estimate of a home's market value, ordered by the lender to confirm the property is worth the loan amount.

Cash-Out Refinance: Replacing your mortgage with a larger one and taking the difference in cash, drawing on your home equity. Most conventional cash-out refinances cap at 80% of the home's value.
Closing Costs: The fees to finalize a mortgage — typically 2–5% of the loan amount — including lender, title, appraisal, and recording charges. Some can be rolled into the loan.
Closing Disclosure: A five-page form detailing your final loan terms, payment, and closing costs. Lenders must provide it at least three business days before closing.
Conforming Loan: A loan that falls within the limits set by the Federal Housing Finance Agency (around $806,500 in most counties for 2026) and meets Fannie Mae/Freddie Mac guidelines.
Contingency: A condition in a purchase contract that must be met for the sale to proceed — commonly financing, appraisal, and home-inspection contingencies.
Conventional Loan: A mortgage not insured or guaranteed by a government agency. It typically asks for stronger credit than FHA but lets you cancel mortgage insurance once you reach about 20% equity.

Debt-to-Income Ratio (DTI): The share of your gross monthly income that goes toward debt payments. Lenders use it to gauge how much mortgage you can comfortably afford.
Down Payment: The portion of a home's price you pay upfront in cash. Programs range from 0% (VA/USDA) to 3–3.5% (conventional/FHA) and up.
DSCR Loan: A Debt-Service Coverage Ratio loan for investors that qualifies on the property's rental cash flow rather than your personal income.

Earnest Money: A good-faith deposit made when your offer is accepted, held in escrow and applied to your down payment or closing costs at closing.
Equity: The portion of your home you own outright — its market value minus what you still owe on the mortgage.
Escrow: A neutral third-party account that holds funds during a transaction. After closing, an escrow account often collects part of your property taxes and insurance with each payment.

FHA Loan: A mortgage insured by the Federal Housing Administration, with down payments as low as 3.5% and flexible credit, in exchange for mortgage insurance.
Fixed-Rate Mortgage: A loan whose interest rate and principal-and-interest payment stay the same for the entire term.

Gift Funds: Money given (usually by family) to help cover a down payment or closing costs. Most programs allow it with a simple gift letter documenting the source.

HELOC: A Home Equity Line of Credit: a revolving second-lien loan you can draw from as needed, secured by your home equity, usually at a variable rate.

Interest Rate: The percentage a lender charges to borrow the principal, separate from APR. It sets your base monthly principal-and-interest payment.

Jumbo Loan: A mortgage that exceeds conforming loan limits, underwritten to stricter credit, reserve, and down-payment standards.

Loan Estimate: A standardized three-page form showing your estimated rate, payment, and closing costs, provided within three business days of applying.
Loan-to-Value Ratio (LTV): The loan amount divided by the home's value, as a percentage. A lower LTV — from a bigger down payment or more equity — usually earns better terms.

Mortgage Insurance Premium (MIP): The mortgage insurance required on FHA loans, paid upfront and annually. On most FHA loans it lasts the life of the loan unless you refinance out.

Origination Fee: A charge from the lender for processing and underwriting your loan, usually a percentage of the loan amount.

Points (Discount Points): Optional upfront fees you pay to lower your interest rate. One point equals 1% of the loan amount.
Pre-Approval: A lender's conditional commitment to lend up to a specific amount after reviewing your credit and finances — stronger than a pre-qualification when you make an offer.
Pre-Qualification: An early, informal estimate of how much you might borrow, based on information you provide without full verification.
Principal: The amount you borrow and still owe, separate from interest. Each payment reduces the principal over time.
Private Mortgage Insurance (PMI): Insurance required on conventional loans when you put down less than 20%. Unlike FHA's MIP, PMI can be cancelled once you reach about 20% equity.

Rate Lock: A lender's guarantee to hold a quoted interest rate for a set period (often 30–60 days) while your loan closes.
Refinance: Replacing an existing mortgage with a new one to lower the rate, change the term, switch loan types, or tap equity.

Underwriting: The lender's review of your income, assets, credit, and the property to decide whether to approve the loan.
USDA Loan: A $0-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 U.S. Department of Veterans Affairs for eligible service members and veterans, offering $0 down and no private mortgage insurance.

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