Mortgage Glossary
74 mortgage terms explained in plain English — no jargon, no confusion. Bookmark this page and refer back whenever something in your loan process needs clarifying.
Adjustable-Rate Mortgage (ARM)
A mortgage where your interest rate changes periodically after an initial fixed period. For example, a 5/1 ARM has a fixed rate for 5 years, then adjusts annually. Your monthly payment can go up or down depending on market conditions.
Amortization
The process of paying off your loan through regular monthly payments over time. Each payment covers both interest and principal. In the early years, most of your payment goes to interest; as the loan matures, more goes toward principal.
Annual Percentage Rate (APR)
The true annual cost of your mortgage, including the interest rate plus fees (origination, mortgage insurance, etc.). APR is always higher than the interest rate and gives you a more accurate picture of your total borrowing cost.
Appraisal
An independent professional assessment of your home's market value, ordered by the lender. The appraised value determines how much the lender will finance. If the appraisal comes in below the purchase price, you may need to renegotiate or cover the gap.
Asset Statements
Bank, brokerage, or retirement account statements showing your savings and assets. Lenders require these to verify your down payment funds and confirm you have reserves after closing.
Back-End Ratio
Your total monthly debt payments (mortgage + all other debts like car loans and credit cards) divided by your gross monthly income. Also called your total debt-to-income ratio. Most conventional programs allow up to 45–50%.
Bank Statement Loan
A mortgage program for self-employed borrowers that uses 12 or 24 months of bank deposits to verify income instead of W-2s or tax returns. Ideal if your reported taxable income is lower than your actual cash flow.
Bridge Loan
A short-term loan that "bridges" the gap between buying your new home and selling your current one. Lets you make a non-contingent offer on your next home without waiting for your existing home to sell.
Buydown
A way to temporarily or permanently reduce your interest rate by paying extra money upfront. A 2-1 buydown, for example, lowers your rate by 2% in year one and 1% in year two before settling at the full rate in year three.
Cash-Out Refinance
A refinance where you borrow more than you currently owe and receive the difference as cash. Used to access your home equity for renovations, debt payoff, investments, or other large expenses.
Clear to Close (CTC)
The moment every borrower waits for — your lender has reviewed everything and approved the loan for closing. Once you receive CTC, you schedule your closing date and prepare to sign the final documents.
Closing
The final step in the mortgage process where you sign all loan documents, pay closing costs, and officially take ownership of the property. In most DMV transactions, this happens at a title company.
Closing Costs
Fees paid at closing beyond the down payment. These typically include appraisal, title insurance, lender fees, recording fees, prepaid insurance, and prepaid interest. Expect 2–4% of the loan amount, though some programs allow sellers to cover these.
Closing Disclosure (CD)
A 5-page document provided 3 business days before closing that details your final loan terms, monthly payment, and closing costs. Review this carefully and compare it to your Loan Estimate.
Co-Borrower
An additional person on the mortgage application whose income, assets, and credit are used to qualify. Also called a co-applicant. Different from a non-occupant co-borrower, who won't live in the home.
Conditional Approval
An approval from underwriting with specific conditions you must satisfy before the loan can close. Common conditions include providing additional documents, clarifying a deposit, or getting a homeowner's insurance policy.
Conforming Loan
A conventional mortgage that meets Fannie Mae and Freddie Mac's guidelines, including loan limits set each year. Conforming loans tend to have lower rates than non-conforming (jumbo) loans.
Conventional Loan
A mortgage not backed by a government agency (unlike FHA, VA, or USDA loans). Conventional loans have stricter credit requirements but no upfront mortgage insurance premium and cancellable private mortgage insurance once you reach 20% equity.
Credit Report
A detailed history of your borrowing and repayment activity from Equifax, Experian, and TransUnion. Lenders pull a tri-merge credit report to see your full credit picture before making a decision.
Credit Score
A number (typically 300–850) that summarizes your credit history. The most common model is FICO. Higher scores unlock better interest rates and more loan options. Most programs start at 580 (FHA) to 620 (conventional, DSCR).
Debt-to-Income Ratio (DTI)
The percentage of your gross monthly income that goes toward debt payments. Lenders use this to measure your ability to repay. Most programs cap DTI at 43–50%, though some allow higher with compensating factors.
Deed
The legal document that transfers ownership of a property from seller to buyer. Recorded with the local government at closing.
Default
Failing to make your mortgage payments according to the loan terms. Lenders typically allow a grace period before reporting missed payments, but sustained default leads to foreclosure.
Down Payment
The amount you pay upfront toward the purchase price, not covered by your mortgage. With FHA, the minimum is 3.5%. With conventional, as low as 1–3%. VA and USDA loans offer 0% down.
Down Payment Assistance (DPA)
Programs — often government-funded or nonprofit-backed — that provide grants or low-interest loans to cover your down payment and sometimes closing costs. Programs like TRIO, Chenoa, and the Maryland Mortgage Program make homeownership possible with little or no cash out of pocket.
DSCR Loan
Debt Service Coverage Ratio loan — a mortgage for real estate investors that qualifies based on the property's rental income, not the borrower's personal income. No W-2s or tax returns required. LLCs and corporations can borrow.
Earnest Money
A deposit (typically 1–3% of the purchase price) made with your offer to show the seller you're serious. Held in escrow. Applied toward your down payment or closing costs at closing, or refunded if certain contingencies aren't met.
Equity
The portion of your home's value that you own — the current market value minus what you still owe on the mortgage. Equity grows as you pay down the loan and as the home appreciates.
Escrow
An account held by a neutral third party (typically your lender or title company) that holds funds for property taxes and homeowners insurance. Your monthly payment often includes an escrow contribution to ensure these bills are paid on time.
FHA Loan
A mortgage insured by the Federal Housing Administration. Requires just 3.5% down with a 580+ credit score (or 10% down with 500+ credit). Great for first-time buyers and those rebuilding credit. Requires both upfront and annual mortgage insurance premiums.
FICO Score
The credit score model used by most mortgage lenders. Scores range from 300 to 850. For mortgages, lenders typically use the middle score from your three bureau reports. Each lender pulls all three and uses the median.
Fixed-Rate Mortgage
A mortgage where the interest rate stays the same for the entire loan term. Your principal and interest payment never changes, making budgeting predictable. The most common terms are 15 and 30 years.
Foreclosure
The legal process a lender uses to take ownership of a property when the borrower stops making payments. Foreclosure damages your credit significantly and typically creates a waiting period before you can get another mortgage.
Foreign National Loan
A mortgage for non-US citizens purchasing property in the US as a second home or investment. No US credit history required. Requires a larger down payment (typically 25%) and documents from your home country.
Front-End Ratio
Your monthly housing costs (principal, interest, taxes, insurance, and HOA) divided by your gross monthly income. Also called the housing ratio. FHA typically allows up to 31%; conventional is more flexible.
Good Faith Estimate (GFE)
The predecessor to today's Loan Estimate — a form showing estimated loan terms and closing costs. Replaced by the Loan Estimate after the 2015 TRID regulations took effect.
Good Neighbor Next Door
An HUD program offering teachers, firefighters, EMTs, and law enforcement officers a 50% discount on HUD-owned homes in designated revitalization areas. Requires a 3-year residency commitment.
Grant
Free money for your down payment or closing costs that does not have to be repaid. Grants are available through various down payment assistance programs, state housing agencies, and select lenders.
Hard Money Loan
A short-term loan based primarily on the property's value, not your credit or income. Common for fix-and-flip investors and developers who need to close fast. Approval can happen in 24–48 hours. Higher rates and fees reflect the short-term nature.
HELOC (Home Equity Line of Credit)
A revolving line of credit secured by your home equity. You borrow as needed up to an approved limit and pay interest only on what you use. Works like a credit card backed by your home.
Homeowners Insurance
Insurance that covers your home against damage from fire, storms, theft, and other covered events. Required by all lenders. Your lender may collect it monthly through your escrow account.
HUD (Department of Housing and Urban Development)
The federal agency that oversees FHA lending, the Good Neighbor Next Door program, and fair housing laws. When someone refers to a "HUD home," they mean a property that was foreclosed and is now being sold by HUD.
Interest Rate
The percentage charged on your loan balance, expressed as an annual rate. Determines your monthly principal and interest payment. Your actual cost of borrowing is better captured by the APR, which includes fees.
ITIN Loan
A mortgage that accepts an Individual Taxpayer Identification Number (ITIN) in place of a Social Security Number. Designed for undocumented residents and non-citizens who file US taxes. Requires IRS-issued ITIN proof, 15%+ down, and 620+ credit.
Jumbo Loan
A mortgage that exceeds the conforming loan limits set by Fannie Mae and Freddie Mac. In the DC Metro Area, this typically means loans above $766,550–$1,149,825 depending on county. Jumbo loans require stronger credit and larger down payments.
Lender
The institution or company that provides the funds for your mortgage. Can be a bank, credit union, or mortgage company. As a broker, we work with 100+ lenders to find the best terms for your situation rather than being tied to one lender's products.
Loan Estimate (LE)
A 3-page document required to be provided within 3 business days of your mortgage application. Shows estimated interest rate, monthly payment, and closing costs. Use it to compare offers from multiple lenders.
Loan Originator
The licensed professional who takes your mortgage application, gathers your documents, and guides you through the loan process. Also called a loan officer. Must be NMLS licensed in the states where they operate.
Loan-to-Value Ratio (LTV)
Your loan amount divided by the property's appraised value, expressed as a percentage. A $280,000 loan on a $350,000 home = 80% LTV. Lower LTV means more equity and typically better rates. LTV above 80% often triggers mortgage insurance requirements.
Lock-In Period
The time frame during which your rate is guaranteed. Typically 30, 45, or 60 days. If your loan doesn't close before the lock expires, you may pay an extension fee or get a new rate.
Manual Underwriting
A loan review process where a human underwriter analyzes your file rather than an automated system. Required for some unusual loan profiles — thin credit files, recent major credit events, or loans that don't fit standard automated guidelines. We offer manual underwriting for less than 5% of loans where it's needed.
Mortgage
A loan used to finance the purchase of a home, secured by the property itself. If you stop making payments, the lender can foreclose and take ownership. The most common mortgage terms are 15 and 30 years.
Mortgage Broker
A licensed professional who works with multiple lenders to find you the best available mortgage — instead of being tied to one institution's products. Brokers access wholesale rates and compare dozens of lenders simultaneously. Their services are typically free because lenders pay the broker directly.
Mortgage Insurance Premium (MIP)
Insurance required on FHA loans that protects the lender if you default. Includes an upfront premium (1.75% of loan amount at closing) and an annual premium paid monthly. Different from PMI, which applies to conventional loans.
Mortgage Note
The legal document you sign at closing that is your promise to repay the loan. Details the loan amount, interest rate, payment schedule, and consequences of default.
NMLS (Nationwide Multistate Licensing System)
The federal registry for mortgage professionals. All loan originators must be NMLS licensed in the states where they work. You can verify any loan officer or company's license at NMLSConsumerAccess.org. Our NMLS ID is 1038683.
Non-Occupant Co-Borrower
A person who co-signs your mortgage to help you qualify but won't live in the home — typically a parent or family member. Their income and credit count toward qualification. Allowed on most FHA and conventional programs including down payment assistance.
Non-QM Loan
A "Non-Qualified Mortgage" — any loan that doesn't meet the Consumer Financial Protection Bureau's standard Qualified Mortgage guidelines. Non-QM loans include bank statement loans, DSCR loans, ITIN loans, and other programs for borrowers who don't fit the traditional mold. Higher rates reflect additional flexibility.
Origination Fee
A fee charged by the lender for processing and originating your loan. As a no-cost broker, we charge no origination fees to you — lenders compensate us directly.
P&L Loan (Profit & Loss)
A mortgage program for self-employed borrowers that uses a CPA-prepared profit and loss statement to verify income instead of tax returns. Alternative to bank statement loans — best when your P&L shows stronger income than your deposits.
PITIA
Principal, Interest, Taxes, Insurance, and Association dues — the full components of your monthly housing payment. Lenders use PITIA (not just principal and interest) to calculate your housing ratio and DTI.
Points (Discount Points)
Prepaid interest paid upfront to reduce your interest rate. One point = 1% of the loan amount. Paying 1 point on a $300,000 loan costs $3,000 and might reduce your rate by 0.25–0.375%. Makes sense if you plan to stay long-term.
Pre-Approval
A lender's written commitment (subject to conditions) to lend you up to a specific amount. Requires a full application, credit check, and income/asset verification. Stronger than pre-qualification and needed to make competitive offers in the DMV market.
Pre-Qualification
An informal estimate of how much you might be able to borrow, based on a brief financial overview. Not verified and doesn't carry the same weight as a pre-approval. Think of it as a first conversation, not a commitment.
Principal
The actual amount you borrowed — distinct from the interest. As you make payments, a portion reduces the principal balance. The faster you pay down principal, the less interest you pay over time.
Private Mortgage Insurance (PMI)
Insurance required on conventional loans when your down payment is less than 20%. Protects the lender (not you) if you default. Unlike FHA's MIP, PMI on conventional loans can be cancelled once you reach 20% equity.
Qualifying Ratios
The two ratios lenders use to determine if you can afford the loan: your front-end ratio (housing costs vs. income) and back-end ratio (all debts vs. income). Both must fall within program guidelines for approval.
Rate Lock
A lender's guarantee to hold your interest rate for a specified number of days while your loan processes. Protects you from rate increases before closing. Typical lock periods are 30, 45, or 60 days.
Refinance
Replacing your existing mortgage with a new one — typically to get a lower rate, access equity, or change the loan term. Can significantly reduce your monthly payment or build equity faster.
Renovation Loan
A mortgage that combines the purchase price and renovation costs into a single loan. FHA 203K and Fannie Mae HomeStyle are the most common programs. One loan, one closing, one monthly payment — even though construction happens after closing.
Reserves
Funds you have left over after closing — typically measured in months of mortgage payments. Lenders want to know you'll still have money after you close. Investment property loans usually require 6–12 months of reserves.
SBA Loan
A Small Business Administration-backed loan for purchasing owner-occupied commercial real estate. SBA 7(a) and 504 programs allow business owners to buy their building with as little as 10% down and up to 25-year terms.
Self-Employed Borrower
A borrower who does not receive a traditional W-2 and whose income comes from a business, freelance work, or self-employment. Self-employed borrowers have multiple mortgage options including bank statement loans, P&L loans, and 1099-only programs that don't require tax returns.
Short Sale
Selling a home for less than the outstanding mortgage balance with lender approval. Damages credit less than foreclosure and typically results in a shorter waiting period before qualifying for a new mortgage.
Title
Legal ownership of a property. A clear title means there are no liens, disputes, or other claims against the property. Title is transferred from seller to buyer at closing via the deed.
Title Insurance
Protection against past problems with a property's title — forged documents, unpaid liens, unknown heirs, or other claims that could threaten your ownership. Required by lenders; also available as owner's coverage (highly recommended).
Title Search
A review of public records to verify the seller has clear ownership and there are no outstanding liens or claims on the property. Performed by the title company before closing.
Underwriting
The lender's process of verifying your credit, income, assets, and the property to decide whether to approve your loan. The underwriter is the decision-maker. They may issue a conditional approval requiring additional documents before final approval.
VA Loan
A mortgage benefit earned by veterans, active-duty service members, and surviving spouses — backed by the Department of Veterans Affairs. Offers 0% down, no private mortgage insurance, and competitive rates. One of the most powerful benefits available to those who served.
W-2 Income
Income reported on IRS Form W-2, which employers send to employees. The simplest form of income to document for a mortgage. Self-employed borrowers, independent contractors, and investors often lack W-2s and need alternative programs.
Wholesale Lending
Mortgage lending through broker channels — where lenders offer their best pricing to brokers rather than retail borrowers. This is how brokers consistently get lower rates than direct-to-consumer lenders: they're accessing the wholesale tier of pricing.
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