A–Z Reference
Mortgage Glossary: Home Loan Terms in Plain English
Lending paperwork is full of acronyms and terms that rarely come up anywhere else. This mortgage glossary defines more than seventy of them, from ARM to yield, in a sentence or two each, with links to the guides and programs where each concept matters most.
How to use it
Why mortgage vocabulary is worth learning
You will see many of these terms on two federally required forms: the Loan Estimate you receive shortly after applying and the Closing Disclosure you review before signing. Knowing the language makes it much easier to compare offers and spot anything that changed between the two.
Terms are listed alphabetically. Where a word connects to a specific loan program or tool, the definition links to it so you can keep reading. Program rules mentioned here are general; your eligibility always depends on underwriting and current guidelines.
Mortgage terms from A to Z
A
- Acceleration Clause
- A provision in the mortgage note allowing the lender to demand the full remaining balance immediately if the borrower defaults or breaks certain loan terms, such as selling without paying off the loan.
- Adjustable-Rate Mortgage (ARM)
- A loan with a fixed introductory rate for a set period, after which the rate resets periodically based on an index plus a margin. Caps limit how much each adjustment can change.
- Amortization
- Gradually paying off a loan through scheduled installments of principal and interest. Early payments go mostly toward interest; later payments shift toward principal. See the effect with our extra payment calculator.
- Annual Percentage Rate (APR)
- The yearly cost of borrowing expressed as a percentage, combining the interest rate with points, origination charges and certain other fees. It is useful for comparing offers with different cost structures.
- Appraisal
- An independent estimate of a property's market value by a licensed appraiser, based on inspection and comparable sales. Lenders use it to confirm the home adequately secures the loan.
- Appraisal Gap
- The difference when a home appraises for less than the agreed purchase price. The buyer typically covers it with extra cash, renegotiates the price, or relies on an appraisal contingency.
- Assumable Mortgage
- A loan that a qualified buyer may take over from the seller, keeping the existing rate and balance. Many FHA, VA and USDA loans are assumable with lender approval.
B
- Balloon Mortgage
- A loan with relatively small payments for a set period followed by one large lump-sum payment of the remaining balance. Borrowers usually refinance or sell before the balloon comes due.
- Bank Statement Loan
- A non-QM option for self-employed borrowers that calculates qualifying income from 12 or 24 months of personal or business bank deposits instead of tax returns. Learn more about specialized mortgage programs.
- Bridge Loan
- Short-term financing that taps equity in a current home to help buy the next one before the first sells. It is typically repaid from the sale proceeds.
- Buydown
- Prepaying interest to reduce the rate, either permanently with discount points or temporarily for the first year or two. Sellers or builders sometimes fund temporary buydowns as a concession.
C
- Cash-Out Refinance
- Replacing your current mortgage with a larger one and receiving the difference in cash. Lenders limit the loan-to-value ratio. Explore options on our refinancing solutions page.
- Certificate of Eligibility (COE)
- A document from the Department of Veterans Affairs confirming a borrower's entitlement for a VA home loan. Lenders can often request it electronically on the borrower's behalf.
- Clear to Close
- The point at which the underwriter has satisfied every condition and approves the loan for funding. Closing can be scheduled once the Closing Disclosure waiting period is met.
- Closing
- The meeting where loan and transfer documents are signed, funds change hands, and ownership passes to the buyer. Also called settlement. Recording the deed makes the transfer official.
- Closing Costs
- Fees and prepaid items paid to complete a mortgage, such as lender charges, appraisal, title insurance, recording fees and initial escrow deposits. They are separate from the down payment.
- Closing Disclosure
- A five-page form detailing final loan terms, payment and closing costs. Borrowers must receive it at least three business days before closing so they can compare it with the Loan Estimate.
- Co-Borrower
- A second person who applies for the loan, shares responsibility for repaying it, and typically appears on title. Their income, assets, debts and credit are all considered in underwriting.
- Conforming Loan
- A conventional mortgage that meets Fannie Mae and Freddie Mac guidelines, including the loan-size limit, so it can be sold to those agencies. Read about conventional mortgages.
- Conforming Loan Limit
- The maximum loan amount Fannie Mae and Freddie Mac will purchase, set each year by the Federal Housing Finance Agency. Limits are higher in designated high-cost counties.
- Construction-to-Permanent Loan
- A single loan that funds building a home and then converts to a standard mortgage when construction ends, with one application and one closing. See our construction loans.
- Contingency
- A condition in a purchase contract that must be met for the sale to proceed, such as financing, appraisal or inspection. It lets the buyer withdraw under defined circumstances, often keeping earnest money.
- Conventional Loan
- Any mortgage not insured or guaranteed by a government agency such as FHA, VA or USDA. Conventional loans may be conforming or non-conforming, like jumbo loans.
- Credit Report
- A record from a credit bureau listing your accounts, balances, payment history, inquiries and public records. Lenders review reports from Equifax, Experian and TransUnion during a mortgage application.
- Credit Score
- A three-digit number summarizing credit risk based on your credit report. Mortgage lenders typically use the middle of three bureau scores, and it influences both eligibility and pricing.
D
- Debt-to-Income Ratio (DTI)
- Total monthly debt payments, including the new housing payment, divided by gross monthly income. Underwriters use it to measure your capacity to handle the mortgage. Test yours with the affordability calculator.
- Debt Service Coverage Ratio (DSCR) Loan
- An investor loan that qualifies based on whether a property's rental income covers its mortgage payment, rather than on the borrower's personal income. See investment property financing.
- Deed
- The signed legal document that conveys ownership of real property from seller to buyer. It is recorded with the county to make the transfer part of the public record.
- Deed of Trust
- In many states, the security instrument used instead of a mortgage. It places legal title with a neutral trustee until the loan is repaid, which can allow non-judicial foreclosure.
- Discount Points
- Upfront fees paid at closing to lower the interest rate, with one point usually equal to one percent of the loan amount. They pay off only if you keep the loan long enough.
- Down Payment
- The part of the purchase price paid in cash rather than borrowed. Minimums depend on the program, ranging from zero for eligible VA and USDA borrowers to larger amounts for jumbo loans.
- Down Payment Assistance
- Grants, forgivable loans or deferred second loans that help eligible buyers cover a down payment or closing costs. Availability varies by state, locality and income, and our team can help check eligibility.
E
- Earnest Money
- A deposit made when an offer is accepted to show good faith. It is held in escrow and credited toward the buyer's down payment or closing costs at settlement.
- Escrow Account
- An account your loan servicer manages to collect a monthly share of property taxes and homeowners insurance, then pay those bills when due. An annual analysis adjusts the deposit.
- Escrow (Transaction)
- During a purchase, a neutral third party holds deposits, documents and funds until every contract condition is met, then disburses them at closing according to the agreement.
F
- FHA Loan
- A mortgage insured by the Federal Housing Administration, known for flexible credit standards and a minimum down payment typically of 3.5% with a qualifying score. Learn more about FHA loans.
- FHA Streamline Refinance
- A refinance for existing FHA borrowers that reduces documentation and often skips the appraisal, provided the new loan offers a net tangible benefit such as a lower payment.
- FICO Score
- The most widely used credit scoring model, created by Fair Isaac Corporation. Mortgage lenders generally rely on specific FICO versions from each of the three bureaus.
- Fix-and-Flip Loan
- Short-term financing for investors who buy a property, renovate it and resell it. Loan amounts may consider both the purchase price and the after-repair value.
- Fixed-Rate Mortgage
- A loan whose interest rate never changes, so principal and interest payments stay the same for the entire term. Common terms are 15 and 30 years.
- Float-Down
- An optional rate lock feature that lets a borrower capture a lower rate if market rates drop meaningfully after locking. Terms and costs vary by lender.
- Foreclosure
- The legal process a lender uses to take and sell a property after the borrower defaults on the loan. Rules and timelines differ by state and security instrument.
G
- Gift Letter
- A signed statement from a donor confirming money given toward a home purchase is a gift with no repayment expected. It includes the amount, relationship and source account. See the document checklist.
- Good Faith Estimate (GFE)
- A former closing-cost disclosure that was replaced, along with the Truth in Lending statement, by the Loan Estimate under the TILA-RESPA Integrated Disclosure rules.
- Grace Period
- A short window after a payment's due date when you can still pay without a late fee. Payments made within it generally are not reported as late to credit bureaus.
H
- HELOC (Home Equity Line of Credit)
- A revolving credit line secured by home equity. You draw funds as needed during a draw period and repay over time, usually at a variable rate.
- Home Equity
- The share of your home you own outright: current market value minus all loan balances secured by the property. It grows as you pay down principal and as values rise.
- Home Equity Loan
- A lump-sum loan secured by your home equity, typically with a fixed rate and fixed payments. It is usually a second lien behind the first mortgage.
- Home Inspection
- A buyer-ordered examination of a home's structure, systems and condition by a professional inspector. Unlike the appraisal, it serves the buyer and can support repair requests.
- Homeowners Association (HOA) Dues
- Regular fees charged by a community association for shared amenities, maintenance and insurance. Lenders include them in your debt-to-income ratio even though they are paid separately.
- Homeowners Insurance
- A policy covering the home's structure and your belongings against perils such as fire and wind, plus liability protection. Lenders require coverage before closing and often escrow the premium.
I
- Index
- A published benchmark interest rate used to calculate ARM adjustments. When the rate resets, the lender adds a fixed margin to the current index value.
- Interest
- The cost of borrowing money, calculated on the outstanding principal. On a standard mortgage, each monthly payment covers the interest accrued since the prior payment.
- Interest Rate
- The percentage a lender charges annually on the loan balance, influenced by market conditions, credit profile, down payment, loan type and points paid.
- Interest Rate Reduction Refinance Loan (IRRRL)
- The VA streamline refinance for borrowers who already have a VA loan, designed to lower the rate or move from an adjustable to a fixed rate with simplified paperwork. Visit our VA loans page.
J
- Jumbo Mortgage
- A loan larger than the conforming limit for the county. Jumbo financing usually calls for stronger credit, larger reserves and fuller documentation. See jumbo mortgages.
L
- Lien
- A legal claim against property that secures a debt. A mortgage creates a lien, and liens are generally paid in order of priority when a property is sold or foreclosed.
- Loan Estimate
- A standardized three-page disclosure lenders must provide within three business days of receiving an application, showing estimated rate, payment, closing costs and key loan features.
- Loan Officer
- A licensed professional who takes your application, explains loan options and guides the file through approval. Mortgage loan originators must be registered with the NMLS.
- Loan-to-Value Ratio (LTV)
- The loan amount divided by the property's value or price, whichever is lower. Lower LTV means more equity and generally better pricing and fewer mortgage insurance requirements.
M
- Margin
- The fixed percentage a lender adds to an index to set an adjustable rate after the introductory period. It is set at closing and stays the same for the life of the loan.
- Mortgage
- A loan used to buy or refinance real estate, with the property pledged as collateral. If payments stop, the lender may foreclose to recover what is owed.
- The mortgage insurance charged on FHA loans, consisting of an upfront premium usually financed into the loan and an annual premium paid monthly. Duration depends on the down payment.
- Mortgage Note
- The promissory note you sign at closing promising to repay the loan, stating the amount, rate, payment schedule and consequences of default.
N
- NMLS
- The Nationwide Multistate Licensing System, the registry for mortgage companies and loan originators. Anyone can verify a lender or loan officer's license through NMLS Consumer Access.
- Non-Conforming Loan
- A mortgage that does not meet Fannie Mae or Freddie Mac purchase guidelines, typically because of its size, as with jumbo loans, or its documentation, as with non-QM loans.
- Non-QM Loan
- A non-qualified mortgage that uses alternative ways to verify ability to repay, such as bank statements or asset depletion. Helpful for self-employed borrowers and other non-traditional profiles.
O
- Origination Fee
- A charge from the lender for processing and underwriting a loan, shown in the origination section of the Loan Estimate. It may be a flat amount or a percentage.
P
- PITI
- Short for principal, interest, taxes and insurance, the four main parts of a monthly housing payment. Lenders use the full PITI amount when calculating qualifying ratios.
- Pre-Approval
- A lender's conditional commitment based on a review of your credit, income and asset documents, stating a loan amount and program. It strengthens offers. Start your pre-approval.
- Prepaid Items
- Costs paid at closing in advance of when they are due, such as homeowners insurance premiums, daily interest through month-end and initial escrow deposits for property taxes.
- Prepayment Penalty
- A fee some loans charge if the balance is paid off early through sale or refinance. Most standard residential mortgages do not include one, but some investor loans do.
- Pre-Qualification
- An informal estimate of borrowing power based on information you report yourself, without document verification. It is a helpful first step but carries less weight with sellers than pre-approval.
- Principal
- The amount borrowed, or the portion of it still owed. Each payment's principal portion reduces the balance and builds equity in your home.
- Private Mortgage Insurance (PMI)
- Insurance that protects the lender on conventional loans with less than 20% down. Borrowers can usually request removal at 80% of original value, and it generally ends automatically at 78%.
Q
- Qualified Mortgage (QM)
- A loan that meets federal ability-to-repay standards, including limits on certain fees and a ban on risky features like negative amortization and interest-only periods.
R
- Rate-and-Term Refinance
- A refinance that changes the interest rate, the loan term, or both, without taking out additional cash beyond limited closing-cost amounts. Estimate savings with the refinance calculator.
- Rate Lock
- A lender's commitment to hold a specific interest rate and points for a set number of days while the loan is processed. If closing slips past the lock, an extension may be needed.
- Recording Fee
- A charge from the local government to enter the deed and mortgage into the public land records. It appears in the government fees section of your disclosures.
- Refinancing
- Paying off an existing mortgage with a new one, usually to lower the rate, change the term, remove mortgage insurance or access equity.
- Renovation Loan
- A mortgage that combines the purchase or refinance of a home with funds for repairs or improvements, which are released as work is completed.
- Reserves
- Liquid funds you will still have after closing, often measured in months of housing payments. Some programs, including jumbo and investor loans, require a set amount of reserves.
S
- Second Mortgage
- Any loan secured by a property that already has a first mortgage, such as a home equity loan or HELOC. It is subordinate and gets repaid after the first lien.
- Seller Concessions
- Money a seller agrees to contribute toward the buyer's closing costs or prepaid items. Each program caps the amount, usually as a percentage of the price.
- Settlement Statement
- An itemized accounting of every credit, charge and proration exchanged at closing. On most purchase loans the Closing Disclosure fills this role, with some title companies issuing their own as well.
- Short Sale
- A sale in which the lender agrees to accept less than the amount owed, usually to avoid foreclosure. It affects credit and may trigger waiting periods for a future mortgage.
- Survey
- A professional measurement showing property boundaries, structures, easements and encroachments. Some lenders or title companies require one before closing.
T
- Title
- Legal ownership of property and the rights that come with it. Clear title means no unresolved liens, judgments or competing ownership claims.
- Title Insurance
- A one-time-premium policy protecting against losses from title defects discovered after closing, such as forgery or recording errors. Lender's coverage is required; owner's coverage is optional but recommended.
- Title Search
- A review of public records to confirm the seller can transfer ownership and to identify liens or claims that must be cleared before closing.
U
- Underwriting
- The lender's detailed review of your credit, income, assets and the property to decide whether the loan meets program guidelines. Conditions may be issued before final approval. Track this stage on the process timeline.
- USDA Loan
- A mortgage guaranteed by the U.S. Department of Agriculture that offers zero down for eligible buyers, with household income limits and eligible rural or suburban locations. Check USDA loans.
V
- VA Funding Fee
- A one-time charge on most VA loans that helps fund the program. It can be financed, and veterans receiving compensation for a service-connected disability are generally exempt.
- VA Loan
- A mortgage guaranteed by the Department of Veterans Affairs for eligible veterans, service members and certain surviving spouses, offering zero down and no monthly mortgage insurance.
- Verification of Employment (VOE)
- A lender's confirmation of your job, title and income directly with your employer, either in writing or by phone, often repeated shortly before closing.
Y
- Yield
- The return an investor earns on a mortgage or mortgage-backed security. Investor yield requirements in the secondary market strongly influence the rates lenders offer borrowers.
Put it to use
Where these terms show up in your loan
Vocabulary sticks better in context. These resources show the same concepts at work in a real transaction.
First-Time Homebuyer Guide
See PITI, contingencies, appraisals and closing costs explained step by step through a first purchase.
Learn more →Mortgage FAQ
Short answers on DTI, discount points, escrow, rate locks and removing PMI.
Learn more →Loan Comparison Tool
Watch how rate, term, points and mortgage insurance change the cost of different scenarios.
Learn more →Reading your disclosures
Five terms to check first on any Loan Estimate
When offers arrive, compare the interest rate and the APR together, since a low rate paired with heavy fees can produce a higher APR. Then look at discount points in the origination section to see whether part of that rate was purchased upfront.
Next, check whether the loan carries mortgage insurance and for how long, and confirm the estimated escrow amount for taxes and insurance. Finally, note whether the rate is locked and when the lock expires. These five items explain most of the difference between two quotes.
Still puzzled by a line on your paperwork?
Send a photo or a question to Sterling Smith at sterling.smith@fcmhomeloans.com, or call or text 931-205-9873. We will explain it in plain terms, usually within 2 business hours.
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