Mortgage Glossary

You've learned the tactics, the objections, and the strategies. Now you have a complete reference of mortgage terminology to support your shopping process. This glossary includes the essential terms you'll encounter, with special attention to language that lenders use to create confusion or pressure.

Use this as a quick reference during lender conversations. If a lender uses a term you don't recognize, look it up here or ask them to explain it clearly. Never let unfamiliar terminology prevent you from asking questions or making informed decisions.

A

Adjustable Rate Mortgage (ARM) - A mortgage with an interest rate that can change over time based on market conditions.

Amortization - The process of paying off a loan over time through regular payments that include both principal and interest.

Annual Percentage Rate (APR) - The true cost of your loan, including interest rate and fees, expressed as a yearly percentage.

Appraisal - A professional assessment of a property's value conducted by a licensed appraiser.

Appraisal Fee - The cost of having a professional appraise your property's value.

Asset - Money or property you own that can be used to qualify for a mortgage.

B

Balloon Payment - A large payment due at the end of a loan term, typically after a series of smaller payments.

Borrower - The person or entity taking out a mortgage loan.

Broker - A mortgage professional who works with multiple lenders to find loans for borrowers.

C

Cash to Close - The total amount of money you need to bring to the closing table.

Closing - The final step in the mortgage process where you sign all documents and receive the keys to your home.

Closing Costs - Fees paid at loan closing, typically 2-5% of the loan amount.

Closing Disclosure - A form that shows the final loan terms and closing costs, provided at least 3 days before closing.

Co-borrower - A person who applies for a mortgage loan with you and is equally responsible for repayment.

Conventional Loan - A mortgage loan that is not insured or guaranteed by the government.

Credit Report - A detailed report of your credit history and current credit status.

Credit Score - A numerical representation of your creditworthiness, typically ranging from 300-850.

D

Debt-to-Income Ratio (DTI) - The percentage of your monthly income that goes toward paying debts.

Down Payment - The amount of money you pay upfront when purchasing a home.

Due-on-Sale Clause - A provision in your mortgage that requires full payment if you sell or transfer the property.

E

Earnest Money - A deposit made to show you're serious about buying a home.

Escrow - An account where money is held by a third party until certain conditions are met.

Escrow Account - An account where your lender holds money for property taxes and insurance.

Escrow Agent - A neutral third party who handles the closing process.

F

FHA Loan - A mortgage loan insured by the Federal Housing Administration.

Fixed Rate Mortgage - A mortgage with an interest rate that remains the same for the entire loan term.

Float-Down Option - A feature that allows you to get a lower rate if rates drop before closing.

Foreclosure - The legal process by which a lender takes possession of a property when the borrower defaults.

G

Good Faith Estimate (GFE) - An estimate of loan terms and closing costs provided by lenders (replaced by Loan Estimate).

Government Loan - A mortgage loan insured or guaranteed by a government agency (FHA, VA, USDA).

H

Home Equity - The difference between your home's value and the amount you owe on your mortgage.

Homeowner's Insurance - Insurance that protects your home and belongings from damage or loss.

Homeowner's Association (HOA) - An organization that manages and maintains common areas in a community.

HUD-1 Settlement Statement - A form showing all charges and credits for a real estate transaction (replaced by Closing Disclosure).

I

Interest Rate - The percentage charged by the lender for borrowing money.

Interest Rate Lock - A guarantee that your interest rate won't change for a specified period.

Investment Property - A property purchased with the intention of generating income or profit.

J

Jumbo Loan - A mortgage loan that exceeds the conforming loan limits set by Fannie Mae and Freddie Mac.

L

Lender - The financial institution that provides the mortgage loan.

Lien - A legal claim against a property that must be paid off before the property can be sold.

Loan Estimate - A standardized form showing loan terms and closing costs, provided within 3 days of application.

Loan Officer - A person who helps you apply for a mortgage loan.

Loan-to-Value Ratio (LTV) - The percentage of the home's value that is being borrowed.

M

Mortgage - A loan used to purchase real estate, where the property serves as collateral.

Mortgage Insurance - Insurance that protects the lender if you default on your loan.

Mortgage Note - A legal document that outlines the terms of your mortgage loan.

Mortgage Broker - A professional who works with multiple lenders to find loans for borrowers.

N

Negative Amortization - When your monthly payment is less than the interest due, causing your loan balance to increase.

Non-Conforming Loan - A mortgage loan that doesn't meet the standards of Fannie Mae and Freddie Mac.

O

Origination Fee - A fee charged by the lender for processing your loan application.

Owner-Occupied - A property where the owner lives as their primary residence.

P

Points - Upfront fees paid to reduce your interest rate (one point = 1% of loan amount).

Pre-approval - A lender's commitment to provide a loan up to a specified amount, based on preliminary review.

Pre-qualification - A lender's estimate of how much you might be able to borrow, based on basic information.

Principal - The amount of money you borrowed, not including interest.

Private Mortgage Insurance (PMI) - Insurance required when your down payment is less than 20%.

Property Tax - Taxes assessed by local government on the value of your property.

Q

Qualifying Ratio - The ratio of your monthly housing expenses to your monthly income.

R

Rate Lock - A guarantee that your interest rate won't change for a specified period.

Refinance - The process of replacing your existing mortgage with a new one.

Reserve Requirements - Assets you must have available after closing to qualify for a loan.

S

Second Mortgage - A loan secured by your home that is subordinate to your first mortgage.

Seller - The person or entity selling the property.

Settlement - Another term for closing.

Subprime Loan - A loan offered to borrowers with poor credit at higher interest rates.

T

Title - Legal ownership of a property.

Title Insurance - Insurance that protects against problems with the property's title.

Title Search - A review of public records to verify ownership and identify any liens.

Truth in Lending Act (TILA) - A federal law requiring lenders to disclose loan terms and costs.

U

Underwriting - The process of evaluating your loan application and determining if you qualify.

Underwriter - A person who reviews loan applications and makes approval decisions.

USDA Loan - A mortgage loan guaranteed by the U.S. Department of Agriculture for rural properties.

V

VA Loan - A mortgage loan guaranteed by the Department of Veterans Affairs for eligible veterans.

Verification of Employment (VOE) - Documentation confirming your employment and income.

Verification of Assets (VOA) - Documentation confirming your financial assets.

W

Walk-Through - A final inspection of the property before closing.

Warranty Deed - A legal document that transfers ownership of a property.

Y

Yield Spread Premium - A fee paid to mortgage brokers by lenders for loans with higher interest rates.

Common Acronyms

ARM - Adjustable Rate Mortgage APR - Annual Percentage Rate DTI - Debt-to-Income Ratio FHA - Federal Housing Administration GFE - Good Faith Estimate HOA - Homeowner's Association LTV - Loan-to-Value Ratio PMI - Private Mortgage Insurance TILA - Truth in Lending Act VA - Veterans Affairs USDA - U.S. Department of Agriculture

Key Terms to Remember

Most Important for Shopping:

• APR - Use this to compare total loan costs
• Loan Estimate - Get this from every lender
• Rate Lock - Protects you from rate increases
• Closing Costs - All fees paid at closing
• PMI - Required with less than 20% down

Red Flag Terms:

• "Guaranteed Approval" - No legitimate lender can guarantee approval
• "No Closing Costs" - Usually means costs are rolled into the loan
• "Rate Buydown" - Lender pays points but you pay higher closing costs
• "Exclusive Program" - Often just marketing language

The Bottom Line

Understanding mortgage terminology gives you confidence in conversations with lenders and helps you make informed decisions. Don't hesitate to ask lenders to explain any terms you don't understand.

Remember: A good lender will be happy to explain any terms or concepts you're unfamiliar with. If a lender uses jargon to confuse you or won't explain things clearly, that's a red flag.