Plain-English definitions of the mortgage terms used across this site. Each links to the guide or calculator that covers it in depth.
A
- Adjustable-rate mortgage (ARM)
- A loan whose rate is fixed for a set period, often 5, 7 or 10 years, then adjusts at set intervals to an index plus a margin, within limits called caps. Read the adjustable-rate mortgages guide
- Amortization
- Paying a loan down with regular payments of principal and interest so it is paid off by the end of its term. Early payments are mostly interest; later ones are mostly principal.
- Annual percentage rate (APR)
- The yearly cost of a loan including interest and certain fees, shown as a rate. It is usually higher than the interest rate and is the better number for comparing offers. How to compare rates and APRs
- Appraisal
- An independent estimate of a home’s value by a licensed appraiser, ordered through the lender. The loan amount is limited by the lower of the price or the appraised value.
- Automated underwriting system (AUS)
- Software lenders use to evaluate a loan against agency guidelines: Fannie Mae’s Desktop Underwriter and Freddie Mac’s Loan Product Advisor are the main ones.
B
- Bank statement loan
- A non-QM loan for self-employed borrowers that counts deposits on 12 or 24 months of bank statements as income, instead of tax returns. Read the self-employed loans guide
- Bridge loan
- Short-term financing that lets you borrow against your current home’s equity to buy the next one before the first one sells. Read the construction & bridge loans guide
C
- Cash-out refinance
- Replacing your mortgage with a larger one and receiving the difference in cash, up to the loan-to-value limit for your loan type. Read the cash-out refinance guide
- Certificate of Eligibility (COE)
- The VA document confirming a veteran, service member or surviving spouse is eligible for a VA home loan and showing their entitlement. Read the VA loans guide
- Closing costs
- Fees and prepaid items paid at closing: lender fees, appraisal, title and escrow, recording and transfer taxes, plus prepaid interest, taxes and insurance.
- Closing Disclosure
- The five-page form showing the final terms and costs of a consumer mortgage. You must receive it at least three business days before closing.
- Combined loan-to-value (CLTV)
- All loans on a property added together, divided by its value. It matters when a second mortgage or HELOC sits behind a first mortgage. Read the second mortgages & HELOCs guide
- Condotel
- A condominium unit in a building run as a hotel, usually with a rental program and front desk. Most need a specialist lender. Read the condotel & short-term rental loans guide
- Conforming loan
- A conventional loan that meets Fannie Mae or Freddie Mac guidelines and is no larger than the conforming loan limit for the county. Read the conventional loans guide
- Conforming loan limit
- The largest loan Fannie Mae and Freddie Mac will buy, set each year by FHFA. It is higher in high-cost counties. See the loan limits by county
- Conventional loan
- A mortgage not insured or guaranteed by a government agency such as FHA, VA or USDA. Read the conventional loans guide
D
- Debt service coverage ratio (DSCR)
- A rental property’s monthly rent divided by its monthly housing cost. DSCR loans qualify on that ratio instead of the borrower’s income. Use the DSCR calculator
- Debt-to-income ratio (DTI)
- Your monthly debt payments, including the new housing payment, divided by your gross monthly income. Use the Debt-to-income calculator
- Discount points
- Upfront fees paid to lower the interest rate. One point equals 1% of the loan amount. Use the Mortgage points calculator
- Down payment
- The part of the purchase price you pay yourself rather than borrow. Read the first-time buyers guide
E
- Earnest money
- A deposit you make when your offer is accepted to show you are serious. It is usually applied to your down payment or closing costs.
- Escrow account
- An account your servicer holds to collect part of each payment for property taxes and insurance and pay those bills for you.
F
- FHA loan
- A mortgage insured by the Federal Housing Administration, with lower down payment and more flexible credit standards than many conventional loans. Read the FHA loans guide
- Foreign national loan
- A mortgage for a buyer who lives outside the U.S. and has no U.S. credit history or Social Security number. Read the foreign national & ITIN loans guide
H
- HELOC (home equity line of credit)
- A revolving credit line secured by your home. You draw what you need during a draw period, then repay it. The rate is usually variable. Read the second mortgages & HELOCs guide
- High-balance loan
- A conforming loan above the standard limit but within the higher limit for a high-cost county. See the loan limits by county
I
- Interest-only loan
- A loan that requires only interest payments for an initial period, so the balance does not go down until principal payments begin.
- IRRRL (VA streamline refinance)
- The VA Interest Rate Reduction Refinance Loan: a VA-to-VA refinance to a lower rate or from an adjustable to a fixed rate, with limited paperwork. Read the VA loans guide
- ITIN loan
- A mortgage for a U.S. resident who files taxes with an Individual Taxpayer Identification Number instead of a Social Security number. Read the foreign national & ITIN loans guide
J
- Jumbo loan
- A mortgage larger than the conforming loan limit for the county, so it cannot be sold to Fannie Mae or Freddie Mac. Read the jumbo loans guide
L
- Loan Estimate
- The three-page form a lender must give you within three business days of a consumer mortgage application, showing the rate, payment and costs.
- Loan-to-value ratio (LTV)
- The loan amount divided by the property’s value or price, whichever is lower. A 20% down payment means an 80% LTV. Use the Cash-out refinance calculator
M
- Margin and index
- On an ARM, the rate after the fixed period equals an index (a market rate such as SOFR) plus a fixed margin set in your loan. Read the adjustable-rate mortgages guide
N
- Non-amortizing loan
- A loan whose payments don’t pay the balance down on a schedule, such as an interest-only or balloon loan. The principal is repaid at the end, from a sale, a refinance or one large payment. Many bridge, construction and some investor loans work this way. Read the construction & bridge loans guide
- Non-QM loan
- A loan that does not follow the qualified mortgage rules, such as bank statement or asset-based loans, used when income or property do not fit standard guidelines. Read the self-employed loans guide
- Non-warrantable condo
- A condo in a project that does not meet Fannie Mae or Freddie Mac standards, for example because of litigation, a high investor share or commercial space. Read the condo financing guide
P
- PITIA
- Principal, interest, taxes, insurance and association dues: the full monthly housing payment lenders use for DSCR and reserves. Use the DSCR calculator
- Pre-approval and pre-qualification
- A pre-qualification is a quick estimate from what you tell a lender. A pre-approval is based on your credit report and documents and carries more weight with sellers. Read the first-time buyers guide
- Prepayment penalty
- A fee for paying a loan off early. Common on investor loans; on a home you live in, federal rules ban them on most loans and limit them on the rest. Read the DSCR investor loans guide
- Private mortgage insurance (PMI)
- Insurance on a conventional loan with less than 20% down. You can ask to remove it at 80% loan-to-value, and it ends automatically at 78% of the original value. Read the conventional loans guide
Q
- Qualified mortgage (QM)
- A loan that meets federal ability-to-repay standards, with limits on points and fees and no risky features such as interest-only payments or terms over 30 years.
R
- Rate and term refinance
- Replacing a mortgage to change its rate, term or both, without taking cash out beyond small allowed amounts. Read the refinancing guide
- Rate lock
- A lender’s commitment to hold your interest rate for a set period while the loan closes. How to compare rates and APRs
- Reserves
- Savings left after closing, measured in months of the housing payment, that some programs require. Use the Mortgage reserves calculator
- Residual income
- VA’s test of the money left each month after the housing payment, debts, taxes and living costs, by family size and region. Read the VA loans guide
- Reverse mortgage (HECM)
- A loan for homeowners 62 and older that turns home equity into cash with no required monthly payment. The FHA-insured version is the HECM. Read the reverse mortgages guide
S
- Seasoning
- How long something has been in place: ownership of a property, funds in an account, or time since a bankruptcy or foreclosure. Read the credit recovery guide
- Seller concessions
- Costs the seller agrees to pay for the buyer, such as closing costs. Each loan type limits how much is allowed.
- Streamline refinance (FHA)
- An FHA-to-FHA refinance with reduced documentation, allowed when the new loan gives a clear benefit such as a lower payment. Read the refinancing guide
T
- Title insurance
- Insurance against problems with the property’s ownership record. The lender’s policy protects the lender; an owner’s policy protects you.
U
- Underwriting
- The lender’s review of your credit, income, assets and the property to decide whether to approve the loan and on what terms.
- USDA loan
- A mortgage guaranteed by the U.S. Department of Agriculture for eligible rural and some suburban areas, with no down payment and household income limits. Read the USDA loans guide
V
- VA funding fee
- A one-time fee on most VA loans, a percentage of the loan amount that depends on the loan type, down payment and prior use. Some veterans are exempt. Use the VA funding fee calculator
- VA loan
- A mortgage guaranteed by the Department of Veterans Affairs for eligible veterans, service members and surviving spouses, often with no down payment. Read the VA loans guide
W
- Warrantable condo
- A condo in a project that meets Fannie Mae or Freddie Mac standards, so it can be financed with a conventional loan. Read the condo financing guide
