Home/Resources/Glossary
Mortgage terms, defined plainly.
Most mortgage glossaries are written by lawyers for lawyers. This one is written for borrowers. Every definition is built around what the term actually means for your wallet, your timeline, and your decision — not the textbook definition.
38+yrs
In business
since 1988
50
States
licensed
100k+
Families
helped
Get StartedTell us what you're looking for
Step 01 of 04What brings you here today?
No. 01 · A–Z reference
The terms that actually matter.
Forty-plus terms organized alphabetically. Each definition focuses on what it means for your loan, not the regulatory boilerplate.
A
Adjustable-Rate Mortgage (ARM)
A loan where the interest rate changes periodically based on a benchmark index. The most common is 5/1 ARM — rate fixed for first 5 years, then adjusts annually. Lower initial rate than fixed, but higher long-term risk.
Amortization
The schedule of payments that gradually pays off the loan principal and interest over the loan term. Early payments are mostly interest; later payments are mostly principal.
Annual Percentage Rate (APR)
The total cost of credit expressed as a yearly rate, including interest plus most fees. APR is higher than the interest rate because it includes closing costs spread over the loan life.
Appraisal
Independent professional valuation of the property by a licensed appraiser, ordered by the lender. Determines fair market value and protects the lender from over-lending.
B-C
Closing Costs
Fees paid at loan closing — lender fees, title insurance, escrow setup, recording fees, prepaids. Typically 2–5% of loan amount.
Closing Disclosure (CD)
Final binding document showing exact closing costs, monthly payment, and cash-to-close. Must be issued 3 business days before closing.
Conforming Loan
A loan that meets size limits set by Fannie Mae and Freddie Mac. 2026 conforming limit: $766,550 in standard markets. Loans above this are jumbo.
Conventional Loan
A mortgage not insured by the government (FHA, VA, USDA). Issued by private lenders, subject to Fannie/Freddie guidelines.
D-E
Debt-to-Income Ratio (DTI)
Front-end DTI: housing payment ÷ gross monthly income. Back-end DTI: all monthly debts ÷ gross monthly income. Most lenders cap back-end DTI at 43–50%.
Down Payment
Cash you put toward the home purchase upfront. Typically 3–20% of purchase price. 20% eliminates PMI on Conventional loans.
Earnest Money
Deposit (typically 1–3% of purchase price) made when you sign a purchase contract, demonstrating serious intent to buy. Held in escrow.
Escrow
A third-party account holding funds (usually for taxes and insurance) until they need to be paid. Lender collects 1/12th of annual taxes and insurance with each mortgage payment.
F-H
FHA Loan
Mortgage insured by the Federal Housing Administration. 3.5% minimum down with 580+ FICO. Permanent MIP at low down payments.
Fixed-Rate Mortgage
Loan where the interest rate stays the same for the entire term. Most common: 30-year fixed and 15-year fixed.
HELOC
Home Equity Line of Credit. Revolving credit line secured by your home equity. Variable rate, draw period (typically 10 years) followed by repayment period.
I-L
Interest Rate
The percentage charged for borrowing the loan principal, expressed as an annual rate.
Jumbo Loan
Loan exceeding conforming limits. Stricter underwriting (typically 700+ FICO, 20%+ down, 6+ months reserves).
Loan Estimate (LE)
Standardized 3-page disclosure issued within 3 business days of formal application showing rate, fees, and closing cost estimates.
Loan-to-Value Ratio (LTV)
Loan amount ÷ home value. Lower LTV = more equity in the home = better rate. 80% LTV is the threshold for eliminating PMI.
M-O
Mortgage Insurance Premium (MIP)
FHA-specific mortgage insurance. Permanent at low down payments (under 10% down). 0.55% annual + 1.75% upfront.
Origination Fee
Fee charged by the lender for processing the loan. Typically 0.5–1% of loan amount. Negotiable.
P-R
PITI
Principal, Interest, Taxes, Insurance. The four components of your real monthly mortgage payment.
Points (Discount Points)
Fees paid upfront to lower the interest rate. 1 point = 1% of loan amount — typically buys 0.25% lower rate. Worth it only if you hold the loan long enough to recoup.
Pre-Approval
Lender review of verified income, assets, and credit (hard pull) confirming you qualify for a specific loan amount. Carries weight in offers.
Pre-Qualification
Quick estimate based on self-reported numbers. Less rigorous than pre-approval; less weight with sellers.
Private Mortgage Insurance (PMI)
Conventional-loan mortgage insurance required at <20% down. Cancels at 78–80% LTV, automatically or by request.
Rate Lock
Agreement that the lender holds your interest rate for a specified period (30, 45, 60 days). Locks protect against rate increases during processing.
S-U
Title Insurance
Lender's title insurance protects the bank from title defects up to the loan amount (required). Owner's title insurance protects the buyer (optional but strongly recommended).
Underwriting
The lender's formal review of the complete loan file (credit, income, assets, property) before issuing final approval.
USDA Loan
Government-backed loan for rural and some suburban properties. 0% down required. Geographic and income limits apply.
V-Z
VA Loan
Government-backed loan for eligible service members, veterans, and surviving spouses. 0% down, no PMI, flexible underwriting.
No. 02 · Common confusion
The terms most often mixed up.
A few definitions deserve more than a single line. Tap any question.
The interest rate is the cost of borrowing the principal. The APR is the interest rate plus most lender fees (origination, discount points, mortgage insurance) expressed as a yearly cost. APR is always higher than rate, and it's the better number for comparing loan offers head-to-head — because it captures fees the rate alone hides.
No. PMI is private mortgage insurance on conventional loans — it falls off automatically at 78% LTV. MIP is the FHA equivalent — and on most FHA loans it's permanent for the life of the loan unless you put 10%+ down. This is the single biggest reason borrowers refinance out of FHA into conventional once they have 20% equity.
Because what most people call "the mortgage payment" is actually PITI — principal, interest, property taxes, and homeowners insurance. The lender collects 1/12th of your annual tax and insurance bills with every payment, holds them in escrow, and pays the bills when due. Mortgage insurance (PMI/MIP) gets added on top if you're under 20% down.
It depends on how long you'll keep the loan. One point typically costs 1% of the loan amount and buys roughly 0.25% off the rate. Divide the upfront cost by the monthly savings to get your break-even point in months. If you plan to refinance or sell before that, points lose money. If you're holding the loan 7+ years, they often pay back.
A conforming loan meets the size and underwriting limits set by Fannie Mae and Freddie Mac. The 2026 baseline conforming limit is $766,550 in standard markets, higher in high-cost counties. Above that, you're in jumbo territory — stricter credit, higher reserves, and pricing that depends on the investor.
Pre-qualification is informal — based on self-reported numbers and a soft credit pull, if anything. It carries little weight with sellers. Pre-approval is formal: verified income, assets, and a hard credit pull, with a written commitment letter for a specific loan amount. In a competitive offer situation, pre-approval is the minimum you want in hand.
Have a Term We Missed?
Talk to a real LO — they'll explain anything.
Sixty-second short app, no SSN, no hard credit pull. Ask any question.
NMLS #1796·Licensed in 50 states·Equal Housing Lender
Disclosures. Definitions on this page are simplified plain-language explanations intended to help borrowers understand mortgage terminology — they are not legal, tax, or financial advice and do not replace the precise definitions found in your loan documents, regulatory disclosures, or applicable state and federal law. Specific program eligibility, qualification, rates, fees, terms, and timelines depend on borrower credit, income, assets, debt-to-income, property type, occupancy, location, current market conditions, and lender overlays which may add stricter requirements than agency baselines. 2026 conforming loan limits ($766,550 baseline, higher in designated high-cost counties) are set annually by the Federal Housing Finance Agency and are subject to change. FHA, VA, and USDA program parameters, minimum credit scores, MIP/funding fee rates, and geographic eligibility are set by the respective agencies and updated periodically; figures cited are typical for 2026 but should be confirmed with a licensed loan officer for your specific situation. PMI cancellation thresholds (78% automatic / 80% by request) reflect the federal Homeowners Protection Act for borrower-paid PMI on conventional loans on primary residences; lender-paid PMI, FHA MIP, and investment property loans follow different rules. Discount-point and rate-lock pricing varies daily by lender, market, loan type, and borrower file; the “1 point buys 0.25%” rule of thumb is a typical approximation, not a promise. APR calculations follow Regulation Z; included fees vary by loan program. Land Home Financial Services, Inc. NMLS #1796. Equal Housing Lender. Licensed in 50 states.