Mortgage Glossary

A

Adjustable-Rate Mortgage (ARM)

A mortgage whose interest rate is fixed for an initial period and then can adjust at set intervals based on a market index plus a margin. Caps limit how much the rate can change. ARMs can make sense if you expect to sell or refinance before the fixed period ends.

Amortization

The schedule for paying off a loan through regular payments over time. Early payments go mostly toward interest; later payments go mostly toward principal. An amortization schedule shows that split for every payment.

Annual Percentage Rate (APR)

A yearly measure of the cost of a loan that includes the interest rate plus certain lender fees and charges. Because it includes fees, APR helps you compare offers on a more equal footing. It appears on your Loan Estimate and Closing Disclosure.

Application

The formal request for a mortgage, usually on the Uniform Residential Loan Application. It lists your income, assets, debts, employment and the property. Once submitted with key details, the lender must send you a Loan Estimate.

Appraisal

An independent estimate of a home's market value by a licensed appraiser. Lenders use it to make sure the home supports the loan amount. If it comes in low, you may renegotiate the price, bring more cash, or change loan plans.

Appraisal Waiver

An option on some loans where the lender's automated system accepts the property value without a full appraisal. Eligibility depends on the loan, property and data available. It can save time and cost when offered.

Assets

Money and property you own, such as checking, savings, retirement and investment accounts. Lenders review assets to confirm funds for the down payment, closing costs and sometimes reserves. Large unexplained deposits usually need documentation.

Assumable Mortgage

A loan that a qualified buyer can take over from the seller, keeping the existing terms and balance. FHA, VA and USDA loans are often assumable with lender approval. The buyer typically pays the difference between the price and the loan balance.

Automated Underwriting System (AUS)

Software used by lenders, such as Fannie Mae's Desktop Underwriter or Freddie Mac's Loan Product Advisor, to evaluate a loan file. It gives a recommendation and lists the documents needed. A human underwriter still reviews the final file.

B

Balloon Payment

A large lump-sum payment due at the end of some loans after smaller regular payments. Balloon features are uncommon on standard home loans today. Always know whether a loan has one before you sign.

Bank Statement Loan

A non-QM loan that qualifies self-employed borrowers using 12 or 24 months of personal or business bank deposits instead of tax returns. It helps when write-offs make taxable income look low. Terms vary by lender.

Bridge Loan

Short-term financing that uses equity in your current home to help buy the next one before the first sells. It is repaid when the old home sells. It can help you make a stronger offer without a sale contingency.

Buydown

Paying money upfront, often by the seller or builder, to reduce the interest rate. A temporary buydown lowers payments for the first year or two; a permanent buydown uses discount points for the life of the loan. Terms depend on the loan program.

C

Cash Reserves

Money left in your accounts after closing, usually counted in months of mortgage payments. Some loans, such as jumbo, investment or non-QM loans, require reserves. Retirement and investment accounts may count in part.

Cash to Close

The total amount you bring to closing, including down payment and closing costs, minus deposits and credits. It is shown on your Loan Estimate and Closing Disclosure. Funds usually arrive by wire or cashier's check.

Cash-Out Refinance

Replacing your current mortgage with a larger one and taking the difference in cash. People use it for home projects, paying off debts or other goals. The amount depends on your home's value and the loan's limits.

Certificate of Eligibility (COE)

A VA document showing you are eligible for a VA home loan and how much entitlement you have. Your loan officer can usually request it online. It is based on service history or surviving spouse status.

Clear to Close

The underwriter's final sign-off that all conditions are met and the loan can close. After this, closing documents are prepared and the closing is scheduled. It is the milestone every borrower waits for.

Closing

The appointment where you sign the final loan and ownership documents and funds change hands. In NJ, closings are usually handled by an attorney or title company. You receive the keys once the deal records or funds.

Closing Costs

Fees paid to complete a mortgage and home purchase, such as lender fees, appraisal, title insurance, recording fees and prepaid items. They are itemized on your Loan Estimate and Closing Disclosure. Sellers or lenders can sometimes cover part of them.

Closing Disclosure (CD)

A five-page form that lists your final loan terms, monthly payment and closing costs. You must receive it at least three business days before closing. Compare it with your Loan Estimate and ask about any changes.

Co-Borrower

A second person on the loan who shares responsibility for repaying it and usually shares ownership. Their income and debts are counted in qualifying. A spouse, partner or family member are common co-borrowers.

Co-Signer

Someone who agrees to repay the loan if you don't, often without being on the title. Their credit and debts are considered. Not every loan program allows non-occupant co-signers.

Conditional Approval

An underwriting approval that still requires certain items, such as updated pay stubs, explanations or an appraisal. Once the conditions are cleared, the loan moves to clear to close. It is a normal step in the process.

Conforming Loan

A conventional loan that meets Fannie Mae and Freddie Mac guidelines, including a maximum loan amount set each year. Loans above the limit are called jumbo loans. Limits are higher in some high-cost areas.

Contingency

A condition in a purchase contract that must be met for the sale to go forward, such as financing, appraisal or inspection. If it isn't met, the buyer may be able to cancel. Your agent and attorney help set these terms.

Conventional Loan

A mortgage not insured or guaranteed by a government agency. Most follow Fannie Mae or Freddie Mac guidelines. With less than 20% down, they usually require private mortgage insurance, which can be removed later.

Credit Report

A record of your borrowing and payment history from the bureaus Equifax, Experian and TransUnion. Lenders review it for payment history, balances and public records. You can check yours free at AnnualCreditReport.com.

Credit Score

A number, often a FICO score, that summarizes your credit risk based on your credit report. Mortgage lenders typically use the middle of three scores. Scores affect which programs fit and the pricing you are offered.

D

Debt-to-Income Ratio (DTI)

Your monthly debt payments divided by your gross monthly income, shown as a percentage. It includes the new housing payment plus car loans, cards, student loans and similar debts. Each loan program has its own DTI guidelines.

Deed

The legal document that transfers ownership of a property from seller to buyer. It is recorded with the county after closing. It is different from the mortgage, which secures the loan.

Default

Failing to make loan payments or meet other loan terms. Continued default can lead to late fees, credit damage and foreclosure. If you're struggling, contact your servicer early about options.

Discount Points

Optional upfront fees paid to the lender to reduce your interest rate. One point equals 1% of the loan amount. Whether points make sense depends on how long you plan to keep the loan.

Down Payment

The part of the purchase price you pay upfront instead of borrowing. Requirements vary by program, and some, like VA and USDA, can allow no down payment for eligible borrowers. A larger down payment reduces the loan amount.

Down Payment Assistance (DPA)

Programs that may help eligible buyers with money toward the down payment or closing costs, often as a second loan that may be deferred or forgivable under program terms. Rules, income limits and areas vary. Ask which options fit your situation.

DSCR Loan

A loan for investment properties that qualifies mainly on the property's rental income compared with its payment, instead of your personal income. DSCR stands for debt service coverage ratio. It's popular with real estate investors.

E

Earnest Money

A deposit you make when your offer is accepted to show you are serious about buying. It is held in escrow and applied to your cash to close. Contract contingencies help protect it.

Equity

The difference between your home's value and what you owe on it. Equity grows as you pay down the loan and as values rise. You can tap it with a cash-out refinance, HELOC or home equity loan.

Escrow

Money held by a neutral third party. At purchase, escrow holds your deposit. After closing, an escrow account managed by your servicer collects part of each payment to pay property taxes and homeowners insurance.

F

Fannie Mae

The Federal National Mortgage Association, a government-sponsored enterprise that buys mortgages from lenders. It sets guidelines for many conventional loans. It doesn't lend directly to consumers.

Federal Housing Administration (FHA)

A government agency within HUD that insures FHA loans made by approved lenders. That insurance allows more flexible credit and down payment guidelines. Borrowers pay mortgage insurance premiums for that coverage.

FHA Loan

A mortgage insured by the Federal Housing Administration. FHA loans allow lower down payments and more flexible credit guidelines than many conventional loans. They require upfront and annual mortgage insurance premiums (MIP).

First-Time Home Buyer

Generally someone who hasn't owned a home in the past three years, so past owners can qualify again. Many programs and some down payment help are aimed at first-time buyers. Definitions vary by program.

Fixed-Rate Mortgage

A mortgage with an interest rate that stays the same for the life of the loan. Your principal and interest payment doesn't change, though taxes and insurance can. Common terms are 15 and 30 years.

Foreclosure

The legal process a lender uses to take a property when the borrower defaults. It severely affects credit and creates waiting periods before a new mortgage. Contacting your servicer early can open options to avoid it.

Freddie Mac

The Federal Home Loan Mortgage Corporation, a government-sponsored enterprise that buys mortgages from lenders. Like Fannie Mae, it sets guidelines for conventional loans. It doesn't lend directly to consumers.

G

Gift Funds

Money given by a relative or other allowed donor toward your down payment or closing costs. Lenders usually require a signed gift letter and proof of the transfer. Rules on who can give vary by program.

Good Faith Estimate

An older form that once estimated loan costs. It was replaced by the Loan Estimate in 2015. You may still hear the term used informally.

Gross Income

Your income before taxes and deductions. Lenders use gross income to calculate debt-to-income ratio. Self-employed income is usually based on tax returns or, for some loans, bank deposits.

H

Home Equity Line of Credit (HELOC)

A revolving credit line secured by your home's equity, similar to a credit card. You draw what you need during the draw period and repay it over time. It lets you keep your first mortgage in place.

Home Equity Loan

A second mortgage that gives you a lump sum against your home equity with fixed payments. Your first mortgage stays in place. It is sometimes called a closed-end second.

Home Inspection

A review of a home's condition by a licensed inspector, covering things like the roof, systems and structure. It's different from an appraisal and is for your protection as the buyer. Results can lead to repair requests or credits.

Homeowners Association (HOA)

An organization that manages a community or condo and charges dues. HOA dues are counted in your monthly housing costs when you qualify. Condos may also need to meet project approval guidelines.

Homeowners Insurance

Insurance that covers damage to your home and liability. Lenders require it before closing, and it is often paid through escrow. Flood insurance may be required separately in flood zones.

Housing Ratio

Your total monthly housing payment divided by gross monthly income. It includes principal, interest, taxes, insurance and any HOA dues or mortgage insurance. Some programs look at it along with total DTI.

I

Interest Rate

The cost of borrowing the principal, shown as a yearly percentage. It determines the interest part of your payment. It is different from APR, which also includes certain fees.

Investment Property

A home you buy to rent out or hold for income rather than live in. Investment loans often require more down payment and reserves. DSCR loans are one popular option.

J

Jumbo Loan

A mortgage above the conforming loan limit set for Fannie Mae and Freddie Mac. Jumbo loans often have stricter credit, down payment and reserve requirements. They're common for higher-priced homes.

L

Lien

A legal claim against a property as security for a debt. Your mortgage is a lien on your home until it's paid off. Title work makes sure there are no unexpected liens before closing.

Loan Estimate (LE)

A standard three-page form showing your estimated loan terms, monthly payment and closing costs. Lenders must send it within three business days of your application. It makes comparing offers easier.

Loan Officer (MLO)

A licensed professional who helps you choose a loan, gathers your documents and guides the loan to closing. Loan officers are licensed through the NMLS. You can verify any loan officer at NMLS Consumer Access.

Loan-to-Value Ratio (LTV)

The loan amount divided by the home's value or price, shown as a percentage. A $400,000 loan on a $500,000 home is 80% LTV. LTV affects mortgage insurance, program eligibility and pricing.

Lock Period

The number of days your rate lock is good for, such as 30, 45 or 60 days. The loan must close before it expires or the lock may need to be extended. Longer locks can cost more.

M

Mortgage

A loan used to buy or refinance real estate, with the property as security. If payments aren't made, the lender can foreclose. In everyday use, mortgage also means the home loan itself.

Mortgage Banker

A company that lends its own money (or funds from its credit line) and offers its own loan programs. It can offer only its own products and guidelines. Compare with a mortgage broker.

Mortgage Broker

A licensed professional who compares loan programs from multiple wholesale lenders on your behalf. Instead of offering one bank's loans, a broker shops your scenario to find a fit. The broker guides the loan from application to closing.

Mortgage Insurance (MI)

Insurance that protects the lender if a borrower stops paying. It's usually required on conventional loans with less than 20% down (PMI) and on FHA loans (MIP). It lets buyers purchase with a smaller down payment.

Mortgage Insurance Premium (MIP)

The mortgage insurance on FHA loans. It includes an upfront premium, usually added to the loan, and an annual premium paid monthly. How long it lasts depends on the loan terms.

Mortgage Servicer

The company that collects your payments, manages escrow and handles customer service after closing. It may not be the same company that made the loan. Your servicer can change, and you'll be notified if it does.

N

NMLS

The Nationwide Multistate Licensing System, which licenses mortgage loan officers and companies. Every licensed loan officer has an NMLS ID number. You can look one up at NMLS Consumer Access.

Non-QM Loan

A mortgage that doesn't follow the standard Qualified Mortgage rules, allowing other ways to document income or credit. Examples include bank statement, DSCR and some asset-based loans. Terms vary widely by lender.

O

Origination Fee

A fee charged for processing and making the loan, often shown as a percentage of the loan amount or a flat amount. It appears in section A of your Loan Estimate. Compare it along with the rest of the costs.

P

PITI

Short for principal, interest, taxes and insurance, the four main parts of a monthly mortgage payment. Mortgage insurance and HOA dues may be added. Lenders use your full payment when calculating DTI.

Pre-Approval

A lender's conditional commitment based on a review of your credit, income and assets. It gives sellers confidence your offer is solid. Final approval still depends on the property and underwriting.

Pre-Qualification

An early estimate of what you might borrow, often based on information you provide without full documentation. It's a useful first step but carries less weight than a pre-approval.

Prepaid Items

Costs paid at closing in advance, such as homeowners insurance premiums, property taxes and daily interest until your first payment. They're separate from lender fees. They help fund your new escrow account.

Prepayment Penalty

A fee some loans charge if you pay off the loan early. It's uncommon on standard owner-occupied loans but can appear on investment or non-QM loans. Always check before you sign.

Primary Residence

The home you live in most of the year. Owner-occupied loans often have more flexible terms than second homes or investment properties. Many programs, like VA and FHA, require it.

Principal

The amount you borrow, or the remaining balance you owe, not counting interest. Each payment reduces principal by part. Extra payments toward principal can shorten the loan.

Private Mortgage Insurance (PMI)

Mortgage insurance on conventional loans with less than 20% down. It can usually be removed once you reach enough equity, and it ends automatically at a set point in the schedule. It's paid monthly or in other forms the lender offers.

Property Taxes

Taxes charged by your local municipality based on the home's assessed value. They're often paid through escrow as part of your monthly payment. They vary widely from town to town.

Purchase Contract

The signed agreement between buyer and seller that sets price, terms, dates and contingencies. The lender needs a copy to process a purchase loan. In NJ, an attorney review period often follows signing.

Q

Qualified Mortgage (QM)

A category of loans that meets federal ability-to-repay standards, such as limits on certain fees and risky features. Most conventional, FHA, VA and USDA loans are QM. Non-QM loans fall outside these standards.

R

Rate Lock

An agreement that holds your interest rate and pricing for a set number of days while your loan is processed. If market rates change, your locked rate stays the same until the lock expires. Timing a lock is a conversation with your loan officer.

Rate-and-Term Refinance

A refinance that changes the interest rate, loan term or both without taking extra cash out. It may also move you from an ARM to a fixed loan. Little or no cash goes to the borrower.

Recording Fees

Government fees to record the deed and mortgage in public records. They're listed in closing costs. Amounts vary by county.

Refinance

Replacing your current mortgage with a new one. People refinance to change the rate or term, switch loan types, remove mortgage insurance or take cash out. It comes with its own closing costs.

Reverse Mortgage

A loan for homeowners usually 62 or older that turns equity into cash without monthly mortgage payments. The loan is repaid when the home is sold or no longer the primary residence. Taxes, insurance and upkeep still must be paid.

S

Second Look

A fresh review of a loan request that was turned down or stalled with another lender. A broker can compare guidelines across multiple lenders to see if another program may fit. Approval is never guaranteed and depends on full underwriting.

Second Mortgage

A loan secured by your home behind your first mortgage, such as a HELOC or home equity loan. Some down payment assistance is also structured as a second mortgage. It is repaid along with or after the first.

Self-Employed Borrower

Someone who owns a business or earns 1099 or independent-contractor income. Standard loans usually use two years of tax returns; options like bank statement loans can use deposits instead. A broker can compare approaches.

Seller Concessions

Money the seller agrees to pay toward your closing costs or prepaid items. Each loan program limits how much the seller can contribute. It's negotiated in the purchase contract.

T

Term

The length of time to repay a loan, such as 15, 20 or 30 years. Shorter terms usually mean higher payments but less total interest. Longer terms mean lower payments over more time.

Title

Legal ownership of a property. A title search checks for liens or problems before closing. The deed transfers title to you at closing.

Title Insurance

Insurance that protects the lender and, optionally, the owner against covered problems with the title, such as unknown liens or errors in records. It's a one-time cost at closing. The lender's policy is usually required.

U

Underwriting

The lender's detailed review of your credit, income, assets and the property to decide whether to approve the loan. The underwriter may ask for extra documents, called conditions. Approval comes after conditions are cleared.

Upfront Mortgage Insurance (UFMIP)

A one-time FHA mortgage insurance premium charged at closing. It's usually added to the loan amount rather than paid in cash. Annual MIP is charged separately.

USDA Loan

A mortgage backed by the U.S. Department of Agriculture for homes in eligible rural and some suburban areas. It can allow no down payment for eligible buyers. Household income limits apply.

V

VA Entitlement

The amount the VA will guarantee on your home loan, shown on your Certificate of Eligibility. With full entitlement, many eligible buyers can purchase without a down payment. Entitlement can often be restored and reused.

VA Funding Fee

A one-time fee on most VA loans that helps keep the program running. It can usually be added to the loan. Veterans receiving VA disability compensation and certain others are exempt.

VA Loan

A mortgage guaranteed by the U.S. Department of Veterans Affairs for eligible veterans, service members and surviving spouses. Many borrowers can buy with no down payment and no monthly mortgage insurance. A VA funding fee usually applies unless exempt.

Verification of Employment (VOE)

A check that confirms your job and income, done in writing or by phone before closing. Lenders often verify employment again just before closing. Avoid changing jobs during your loan if you can.

W

Wholesale Lender

A lender that offers loans through mortgage brokers rather than directly to consumers. Brokers can compare many wholesale lenders' programs for one borrower. The wholesale lender funds the loan and sets its own guidelines.

Wire Fraud

A scam where criminals send fake wiring instructions to steal closing funds. Always call your attorney or title company at a known number to confirm instructions before wiring. Legitimate parties won't change instructions by email at the last minute.

Z

Zoning

Local rules that control how property can be used, such as single-family, multi-family or commercial. Appraisers note zoning, and some uses can affect financing. Check zoning before buying to add units or rent.

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