Mortgage Glossary

A home loan where the interest rate changes periodically — usually after an initial fixed period (like 5 or 7 years). Starts lower than a fixed-rate loan but can go up or down based on market conditions. Good if you plan to sell before the rate adjusts; risky if you stay long-term.

The process of paying off your loan through regular monthly payments over time. Each payment covers both interest and principal. Early payments are mostly interest; later payments chip away more at the loan balance. A 30-year mortgage is fully amortized over 360 payments.

The true yearly cost of your loan — includes the interest rate plus lender fees like origination charges. Always higher than the advertised rate. Use APR (not the interest rate) to compare loans from different lenders on equal footing.

An independent assessment of a home's market value, conducted by a licensed appraiser. Your lender requires this to confirm the home is worth what you're paying. If the appraisal comes in low, you may need to renegotiate the price or pay the difference in cash.

A short-term loan that lets you buy a new home before selling your current one. Useful in hot markets but comes with higher rates and fees. Usually repaid within 6–12 months once your old home sells.

The total cash you need to bring on closing day. Includes your down payment plus all closing costs, minus any credits (seller concessions, lender credits). Your Closing Disclosure will show the exact number at least 3 days before closing.

Fees paid at the end of a home purchase — typically 2–5% of the loan amount. Covers things like lender fees, title insurance, appraisal, attorney fees, prepaid taxes and insurance. Some costs are negotiable; others are fixed.

A 5-page document your lender must give you at least 3 business days before closing. Shows all final loan terms, monthly payment, and closing costs. Compare it carefully against your Loan Estimate — surprise changes are a red flag.

A mortgage that meets Fannie Mae and Freddie Mac's size and qualification limits. In most of the U.S., the limit is $766,550 (2024). Conforming loans typically have lower rates than jumbo loans.

A mortgage not backed by any government agency (unlike FHA, VA, or USDA loans). Usually requires a credit score of 620+ and 3–20% down. With 20% down, you skip PMI entirely. Generally better rates if you have strong credit.

A 1977 federal law requiring banks and lenders to actively serve — not just operate in — the low- and moderate-income communities where they take deposits. Regulators grade banks on their compliance.

A number from 300–850 that lenders use to gauge how likely you are to repay debt. The higher the score, the better the rate you'll qualify for. 740+ = excellent rates. 580+ = FHA loan eligible. Below 580 = very limited options.

Your total monthly debt payments (including the new mortgage) divided by your gross monthly income. Example: $2,000/month in debts ÷ $6,000 income = 33% DTI. Most lenders cap it at 43–50%. Lower DTI = better odds of approval and better rates.

The cash you pay upfront when buying a home. Common amounts: 3% (conventional), 3.5% (FHA), 10%, or 20%. A bigger down payment means a smaller loan, lower monthly payment, and possibly no PMI. Comes from your savings — not borrowed.

Grants, forgivable loans, and programs offered by state and local agencies to help eligible buyers cover their down payment and closing costs. Many first-time buyers qualify without knowing it — check HomeLeap's DPA Finder.

Upfront fees you pay to permanently lower your interest rate. One point = 1% of the loan. Example: 1 point on a $300,000 loan costs $3,000 and might lower your rate by ~0.25%. Worth it if you stay in the home long enough to recoup the cost.

A deposit (typically 1–3% of the purchase price) you submit with an offer to show you're serious. Held in escrow until closing — it goes toward your down payment. If the deal falls through on your end, you may lose it. Strong contingencies protect it.

The portion of your home you actually own. Calculated as: current home value minus what you still owe. You build equity by paying down the loan and as home values rise. Equity is the wealth you've built in the property.

Two meanings: (1) During a transaction, a neutral third party holds money and documents until all conditions are met. (2) After closing, your lender collects monthly amounts for property taxes and homeowners insurance and pays them on your behalf. Most lenders require an escrow account.

A federal law that gives you rights over your credit report — including the right to dispute errors, know when your credit is pulled, and get a free report annually. Applies to all three major credit bureaus: Experian, Equifax, and TransUnion.

The federal agency that maps flood zones across the U.S. If your home sits in a FEMA-designated high-risk flood zone, your lender will require you to carry flood insurance — which can cost $1,000–$3,000+ per year on top of regular homeowners insurance.

A mortgage backed by the Federal Housing Administration. Requires just 3.5% down with a 580+ credit score (or 10% down with a 500–579 score). Great for first-time buyers with less-than-perfect credit. Downside: requires both upfront and ongoing mortgage insurance (MIP).

A loan where the interest rate is locked for the entire term — usually 15 or 30 years. Your principal and interest payment never changes. Predictable, easy to budget. The most popular mortgage type for first-time buyers.

Separate from standard homeowners insurance — specifically covers damage from flooding. Required by your lender if the property is in a FEMA-designated flood zone. In some areas, flood insurance can add $1,000–$3,000/year to your costs.

A mortgage insured or guaranteed by a federal agency (FHA, VA, or USDA). These programs let lenders offer better terms to buyers who might not qualify for conventional loans — lower down payments, lower credit score requirements, or no down payment at all.

A 1975 federal law requiring banks and mortgage lenders to publicly report data on every loan application — including the applicant's race, income, neighborhood, and whether the loan was approved or denied. The data is used to detect discriminatory lending patterns.

An organization in planned communities (condos, townhomes, some subdivisions) that maintains common areas and enforces community rules. You pay monthly HOA dues on top of your mortgage — fees range from $50/month to $1,000+/month in luxury buildings. Review HOA docs and financials before buying.

A Depression-era federal agency (1933–1951) that created color-coded "residential security maps" grading neighborhoods as investment risks. Areas with Black residents were systematically marked red (hazardous) — the origin of redlining. Its maps shaped lending, investment, and wealth patterns that persist today.

Insurance that covers your home and belongings against damage, theft, and liability. Lenders require it. Typically rolled into your monthly PITI payment via escrow. Average cost: $1,000–$2,500/year, depending on location and home value.

The percentage a lender charges for borrowing money — does not include fees. Always lower than APR. Your rate determines a big chunk of your monthly payment. Even a 0.5% difference on a $300,000 loan can mean $100+/month and $30,000+ over 30 years.

A mortgage that exceeds the conforming loan limit ($766,550 in most areas, higher in pricey markets). Requires stronger credit, higher income, and typically 10–20% down. Rates can be higher or comparable to conforming loans, depending on the lender.

A legal claim against a property, usually for unpaid debt. A mortgage is a lien. So are unpaid taxes, contractor bills, or HOA dues. All liens must be resolved before a property can be sold. A title search uncovers them.

A federal designation for households earning below 80% of the area's median income. Many down payment assistance programs, grants, and favorable loan terms are specifically targeted at LMI borrowers — if you qualify, you may be leaving money on the table.

A 3-page form you receive within 3 business days of applying for a mortgage. Shows estimated interest rate, monthly payment, and closing costs. Use it to compare offers from multiple lenders. Lenders are held to these estimates.

Your loan amount divided by the home's appraised value. Example: $240,000 loan on a $300,000 home = 80% LTV. Lower LTV = less risk for the lender = better rate for you. 80% LTV (20% down) avoids PMI on conventional loans.

An agreement where your lender guarantees your interest rate for a set period — typically 30, 45, or 60 days. Protects you if rates rise while your loan is processing. If rates drop, you may be able to relock at a lower rate, but not always.

A special tax levied on properties in certain California communities to fund public infrastructure like schools, roads, and fire stations. Adds hundreds to thousands per year on top of your property tax bill. Always check for Mello-Roos before buying in California — it can significantly increase your true monthly cost.

The insurance FHA loans require. Includes an upfront premium (1.75% of the loan, usually rolled in) and an annual premium (0.55–1.05%) added monthly. Unlike PMI on conventional loans, MIP on most FHA loans stays for the life of the loan unless you refinance.

A fee charged by the lender for processing your mortgage application. Typically 0.5–1% of the loan amount. Sometimes called an "underwriting fee" or "processing fee." It's listed on your Loan Estimate and is negotiable with some lenders.

Principal, Interest, Taxes, and Insurance — the four components that make up your total monthly mortgage payment. Principal pays down your loan. Interest is the cost of borrowing. Taxes and insurance are typically collected by your lender via escrow.

Insurance you're required to pay on conventional loans when your down payment is less than 20%. Protects the lender — not you — if you default. Typically costs 0.5–1.5% of the loan annually (about $100–$300/month on a $300,000 loan). Automatically cancels once you reach 20% equity.

A lender has reviewed your actual financials — credit report, income docs, bank statements — and committed to lending you a specific amount. Much stronger than pre-qualification. Sellers take pre-approved buyers more seriously. In competitive markets, it's often required before sellers will accept an offer.

A rough estimate of what you might borrow based on info you provide verbally or online — no credit check, no income verification. Takes minutes. Gives you a ballpark but carries no commitment from the lender. Get pre-approved before making offers.

The actual amount you borrowed — separate from interest, taxes, and insurance. Each monthly payment chips away at the principal. In early years of a mortgage, most of your payment goes to interest. Later, more goes to principal.

An annual tax assessed by local government based on your home's value. Typically collected monthly via escrow and rolled into your PITI. Rates vary widely by location — 0.5% to 2.5%+ of home value per year. Always factor this into your budget.

A federal law requiring lenders to disclose all costs associated with a mortgage. Prohibits kickbacks between service providers (like a lender steering you to a preferred title company for a fee). The Loan Estimate and Closing Disclosure exist because of RESPA.

Replacing your existing mortgage with a new one that has a lower interest rate or different term — without pulling out cash. The goal is a lower monthly payment or to pay off the loan faster. Makes sense if rates drop significantly after you buy.

A federal law requiring lenders to fully disclose loan terms — including APR, total finance charges, and payment schedule — before you sign. Ensures you know the real cost of borrowing, not just the teaser rate. The Loan Estimate is partly a TILA disclosure.

Legal ownership of a property. When you buy, the title transfers to you. A "clean" title means no disputes or liens. A "cloudy" title has unresolved claims that must be fixed before closing. Title searches and title insurance protect against issues.

Protects against hidden problems with a property's ownership history — like forged deeds, undisclosed heirs, unpaid liens, or recording errors. Two policies: lender's (required by your lender) and owner's (optional but strongly recommended). One-time cost paid at closing.

A review of public records to confirm the seller legally owns the property and there are no outstanding liens, judgments, or claims. Done before closing by a title company. Uncovers problems that could affect your ownership rights.

The process where a lender's underwriter verifies all your financial information and makes the final approval decision. They review your credit, income, assets, employment, and the property appraisal. Can take 2–5 days to several weeks. Conditional approval means they need more docs.

A government-backed mortgage for homes in eligible rural and suburban areas. Zero down payment required. Income limits apply (typically up to 115% of the area median income). Great option if you qualify and the property is in an eligible location — check the USDA map.

A mortgage benefit for veterans, active-duty service members, National Guard members, and surviving spouses. No down payment required, no PMI, competitive rates. Backed by the Department of Veterans Affairs. One of the best mortgage products available — if you qualify, use it.