Mortgage terms, explained.

A mortgage with an interest rate that starts fixed for a set period, then adjusts up or down on a schedule based on market rates. Usually shown as 5/1, 7/1, or 10/1 ARM.

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The schedule by which your mortgage gets paid off over time. Early payments are mostly interest; later payments are mostly principal — but the total amount stays the same each month.

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The annualized cost of your mortgage including interest AND most lender fees. APR is usually a bit higher than the interest rate alone and gives you a better way to compare loans.

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A licensed appraiser's professional opinion of the home's market value. Required by the lender to confirm the home is worth what you're paying. Typically costs $500–$800, paid by the buyer.

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The lender's process for confirming you actually have the money you say you have for down payment, closing costs, and reserves. Usually done with bank statements and account statements.

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Your total monthly debt obligations (housing + car + student loans + credit cards + child support) divided by gross monthly income. The number most lenders care about most.

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A monthly, non-taxable allowance paid to service members for housing, set by pay grade, dependents, and duty-station location.

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The person (or people) taking out the mortgage and legally responsible for paying it back. Can be one person or multiple co-borrowers.

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The number of months it takes for your refinance savings to cover your refinance closing costs. Past this point, the refi is saving you real money.

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A short-term loan that bridges the gap between buying a new home and selling your current one. Lets you use equity in your existing home for the new down payment.

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The profit from selling your home for more than you paid. Often tax-free up to $250,000 (single) or $500,000 (married) when it's been your primary residence for 2 of the last 5 years.

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A refinance where you replace your existing mortgage with a larger one and take the difference in cash. Useful for home improvements or debt consolidation — but it resets your loan.

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The total amount of money you bring to closing. Includes the down payment, closing costs, and any prepaid items, minus credits like earnest money already on deposit.

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The Consumer Financial Protection Bureau. Federal agency created after the 2008 housing crisis to protect consumers in financial transactions — including mortgages.

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The neutral third party (usually from the title company) who runs the closing. Reviews documents, collects signatures, disburses funds, and records the deed with the county.

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The fees you pay at closing to finalize the mortgage and home purchase. Typically 2–5% of the home's price. Includes lender, title, escrow, and government fees.

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The 5-page final accounting of your loan terms, monthly payment, and closing costs. Lenders must provide it at least 3 business days before closing so you can review.

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A second person on the mortgage who shares the responsibility for paying it back. Their credit and income are also evaluated. Usually a spouse, partner, or family member.

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An underwriting approval that depends on specific outstanding conditions being satisfied before closing. Common conditions: updated docs, explanations, final pay stub, etc.

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A conventional mortgage that meets the loan limits and guidelines set by Fannie Mae and Freddie Mac. Loan amounts above those limits are jumbo loans.

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A short-term loan used to fund building a new home. Funds are released in stages as construction progresses, then typically converted to a permanent mortgage at completion.

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A mortgage that isn't backed by the government. Most conventional loans follow Fannie Mae and Freddie Mac guidelines (called "conforming"). Typical down payments are 3-20%.

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Someone who legally guarantees your loan but doesn't take ownership or live in the home. Used when the primary borrower can't qualify alone, often a parent helping a child.

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A detailed record of your borrowing history maintained by the three credit bureaus. Lists every account, payment history, and any negative items. Your credit score is calculated from this report.

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A three-digit number (usually 300-850) that summarizes your credit history. Lenders use it as the first filter for approval and to set your interest rate.

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The percentage of your gross monthly income that goes to monthly debt payments. Lenders use it to assess whether you can afford another loan. Lower is better.

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The legal document that transfers ownership of a property from one party to another. Recorded with the county after closing as proof of who owns the home.

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An upfront fee paid to the lender to lower your interest rate. One point equals 1% of the loan amount and typically reduces your rate by 0.25%.

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The amount of cash you put toward the home purchase upfront. Everything else is financed by the mortgage. Lower down payments are possible — sometimes as low as 0% or 3%.

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State, local, or lender programs that help cover your down payment and/or closing costs. Often forgivable grants for first-time buyers below income limits.

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A deposit you put down when your offer is accepted, showing you're serious. Held in escrow and applied toward your down payment or closing costs at closing.

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Someone else's legal right to use a part of your property for a specific purpose — like a utility company's right to access lines, or a neighbor's right to use a shared driveway.

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Any legal claim, lien, restriction, or burden attached to a property that could affect its sale or use. Includes mortgages, easements, liens, deed restrictions, and zoning issues.

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The portion of your home's value that you own outright. Calculated as the home's current value minus the mortgage balance you still owe.

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A separate account your lender uses to collect and pay your property taxes and homeowners insurance for you. Spreads those big bills over 12 monthly payments instead of two annual ones.

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The nickname for the Federal National Mortgage Association — a government-sponsored enterprise that buys mortgages from lenders, packages them into securities, and sells them to investors.

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A government-backed mortgage insured by the Federal Housing Administration. Designed for buyers with lower credit scores or smaller down payments (as low as 3.5%).

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The Federal Housing Finance Agency — the regulator and conservator of Fannie Mae and Freddie Mac. Sets the annual conforming loan limits.

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The most widely used credit scoring model in mortgage lending. Developed by the Fair Isaac Corporation. Ranges from 300 to 850.

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A mortgage where the interest rate stays the same for the entire life of the loan. Your principal-and-interest payment never changes.

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A temporary pause or reduction in your mortgage payments granted by the lender, usually due to hardship. Payments aren't forgiven — you'll have to make them up later.

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The legal process by which the lender takes back a home from a borrower who has stopped paying the mortgage. The home is then sold to recover the loan balance.

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Fannie Mae's smaller sibling. The Federal Home Loan Mortgage Corporation — another government-sponsored enterprise that buys mortgages from lenders to keep money flowing in the housing market.

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Your proposed monthly housing payment (PITI + HOA) divided by your gross monthly income. Lenders generally want this under 28-31%.

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A one-time fee on VA and USDA loans that helps fund the loan guarantee program. Typically 2.15% for VA (first-time use) and 1% for USDA. Usually rolled into the loan.

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A signed letter from a family member confirming that money they gave you toward your home purchase is a gift, not a loan. Required documentation when gift funds are used.

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The Government National Mortgage Association — the government agency that guarantees mortgage-backed securities for FHA, VA, and USDA loans. Different from Fannie and Freddie.

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Government-Sponsored Enterprise. The category of quasi-government entities that includes Fannie Mae and Freddie Mac — chartered by Congress, but privately held.

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Monthly or annual dues paid to a Homeowners Association for maintaining shared spaces, amenities, and enforcing community rules. Common in condos, townhomes, and planned communities.

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The increase in a home's market value over time — one of the two sources of home equity, alongside principal paydown.

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A revolving line of credit secured by your home equity, kind of like a credit card backed by your house. Variable rate, draw what you need, pay back over time.

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A second mortgage that gives you a lump sum borrowed against your home equity. Fixed rate, fixed payment, fixed term — like a regular mortgage, just smaller and secondary.

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A professional inspector's review of the home's condition before you close. Not required by lenders but strongly recommended for buyers. Typical cost: $400-$700.

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Insurance that protects your home and belongings against damage, theft, and liability. Required by lenders — typically costs $1,200–$2,500/year and is paid through your escrow account.

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The U.S. Department of Housing and Urban Development. Oversees FHA loans, runs first-time buyer programs, enforces fair housing laws, and provides foreclosure assistance.

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The lender's process for confirming how much money you actually earn. Typically involves pay stubs, W-2s, tax returns, and sometimes a verification of employment from your employer.

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The cost of borrowing money. The lender charges you a percentage of your remaining loan balance, and you pay it as part of your monthly mortgage payment.

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A mortgage for amounts that exceed the conforming loan limits set by Fannie Mae and Freddie Mac. Usually requires stronger credit, more reserves, and a slightly higher rate.

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The bank, credit union, or mortgage company that loans you the money to buy a home. They set the interest rate, approve the loan, and hold the lien until it's paid off.

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A legal claim on your home that secures a debt. Your mortgage is a lien — the lender has the legal right to take the home if you don't pay.

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A standardized 3-page form your lender must provide within 3 business days of applying. Shows projected interest rate, monthly payment, closing costs, and key loan terms.

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A change to your existing loan terms negotiated directly with your lender, usually to make payments more affordable when you're struggling. Different from refinancing.

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The mortgage professional who guides you through the loan application, helps you choose a product, and quarterbacks your file from application to closing. Often your main point of contact.

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The mortgage team member who organizes your file, requests documentation, orders services (appraisal, title), and prepares everything for underwriting. The behind-the-scenes coordinator.

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The number of years you have to pay off your mortgage. Most common are 30, 20, and 15 years — shorter terms have higher monthly payments but less total interest paid.

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The ratio of your loan amount to your home's appraised value, expressed as a percentage. Lenders use it to gauge risk — lower LTV means lower risk.

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The Mortgage Electronic Registration System — a private registry that tracks mortgage ownership and servicing changes electronically, so loans can be sold without recording every transfer at the county courthouse.

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A DoD-defined geographic zone used to set local BAH rates based on area housing costs.

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What you pay your lender each month — usually principal, interest, property taxes, and homeowners insurance combined. Sometimes called PITI.

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A loan you use to buy a home, where the home itself is the collateral. You pay it back monthly over a set number of years — usually 30.

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Insurance the lender requires when your down payment is less than 20%. Called PMI on conventional loans, MIP on FHA loans, and a funding fee on VA/USDA. Protects the lender, not you.

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The mortgage insurance required on FHA loans. Has both an upfront premium (1.75% of the loan, financed in) and a monthly premium that lasts most of the loan's life.

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A refinance where the lender covers your closing costs in exchange for a slightly higher interest rate. "No-cost" is a bit misleading — you're paying through the rate over time.

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A conventional mortgage that doesn't meet Fannie Mae or Freddie Mac guidelines — usually because it exceeds the conforming loan limit (making it a jumbo) or has non-standard borrower characteristics.

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A mortgage that doesn't meet the Consumer Financial Protection Bureau's Qualified Mortgage standards. Lets lenders use alternative income documentation — bank statements, asset depletion, etc.

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The actual interest rate stated on your mortgage note, used to calculate your principal and interest payment.

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The fee the lender charges for processing and underwriting your loan. Usually 0.5–1% of the loan amount, listed on the Loan Estimate.

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Principal, Interest, Taxes, and Insurance — the four components of a full monthly mortgage payment.

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A mortgage the lender keeps on their own books (in their "portfolio") instead of selling to Fannie Mae or Freddie Mac. Allows more flexibility on borrower qualification.

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A lender's written commitment to loan you a specific amount, based on a credit pull and document verification. Sellers take pre-approved offers seriously. Lasts 60-120 days typically.

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An informal estimate of how much you might be able to borrow, based on information you provide. Quick and easy, but carries little weight with sellers compared to a pre-approval.

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The amount of money you originally borrow on a mortgage, before interest is added. It's what you still owe the lender at any point in time.

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Insurance you pay monthly on a conventional loan when you put down less than 20%. Protects the LENDER (not you) if you stop paying. Falls off automatically at 20% equity.

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Annual tax assessed by your local government (usually county) based on your home's value. Rates vary by location — from about 0.3% to 2.5% of value per year.

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A refinance that changes your interest rate, loan term, or both — but you don't take any cash out. The most common reason people refinance.

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An agreement with your lender to hold your interest rate at a specific level for a set period (often 30-60 days), protecting you if rates rise before you close.

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Making a large principal payment and asking your lender to re-amortize your loan at the new lower balance — lowering your monthly payment without refinancing. Small fee, no new loan needed.

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Replacing your existing mortgage with a new one — usually to get a lower rate, change the loan term, or pull cash out of your equity. Comes with new closing costs.

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A mortgage that includes funds for repairs or upgrades to the home, rolled into the loan balance. Common examples: FHA 203(k) and Fannie Mae HomeStyle.

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The cash you have left over after closing, measured in months of total housing payments. Lenders want to see you can cover payments if your income hiccups. Usually 0-6 months required.

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Income remaining after all major monthly obligations — the VA's primary qualification test alongside DTI.

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A loan for homeowners 62+ that lets them borrow against home equity without monthly payments. The loan is repaid when the homeowner sells, moves, or passes away.

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Anyone whose primary income comes from self-employment — sole proprietors, partners, S-corp owners, freelancers. Mortgage qualification is more document-heavy than for W-2 employees.

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Money the seller agrees to credit toward your closing costs at closing. A common tool in slower markets and when buyers need help with cash to close.

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Selling a home for less than the mortgage balance, with the lender agreeing to accept the shortfall. Used as an alternative to foreclosure when a homeowner can't pay and the home is underwater.

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A simplified refinance available on FHA, VA, and USDA loans. Less paperwork, often no appraisal, faster close — but it's only for rate-and-term refinances, no cash-out.

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A professional measurement of the property's boundaries and physical features. Sometimes required by lenders or title companies, especially for rural or unusual properties.

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Your annual federal income tax filing. Required by lenders for self-employed borrowers and often for W-2 borrowers with non-standard income (rental, dividends, K-1).

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A seller- or builder-funded escrow arrangement that lowers the buyer's effective mortgage payment for the first 1–3 years while the note rate stays unchanged.

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The legal concept of ownership. "Holding title" means having the legal right to possess and control the property. Different from the deed (which documents the transfer).

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