Mortgage Glossary

Plain-language definitions for 118+ mortgage terms. No jargon, no fluff — just the information you need to understand your home loan.

A

Adjustable-Rate Mortgage (ARM)

An adjustable-rate mortgage (ARM) is a home loan with an interest rate that changes periodically based on a market index. ARMs typically start with a fixed rate for an initial period (commonly 5, 7, or 10 years), then adjust annually. They can save you money early on but carry the risk of higher payments later.

Amortization

Amortization is the process of paying off your mortgage through regular monthly payments over time. Each payment covers both interest and a portion of the loan principal. Early payments are weighted heavily toward interest; later payments shift toward paying down principal.

Annual Percentage Rate (APR)

The annual percentage rate (APR) is the true yearly cost of your mortgage, expressed as a percentage. Unlike the interest rate alone, APR includes lender fees, discount points, and other costs rolled into the loan. APR is the best single number for comparing loan offers from different lenders.

Appraisal

A home appraisal is a licensed appraiser's professional opinion of a property's market value, required by your lender before approving a mortgage. The appraisal protects both you and the lender from paying more than a home is worth. Appraisals typically cost $300–$600 and take 1–2 weeks to complete.

Assumable Mortgage

An assumable mortgage lets a buyer take over the seller's existing home loan — including its interest rate, remaining balance, and terms. This is especially valuable when the seller has a low rate and current market rates are much higher. FHA, VA, and USDA loans are generally assumable; conventional loans usually are not.

B

Balloon Mortgage

A balloon mortgage has lower monthly payments for a set period, then requires a large lump-sum 'balloon' payment of the remaining balance at the end of that term — typically 5 or 7 years. They are uncommon for primary home purchases today but appear in commercial real estate and some owner-financed deals.

Basis Point

A basis point is one-hundredth of one percent (0.01%). Mortgage professionals use basis points to describe small changes in interest rates. For example, if your rate drops 25 basis points, it falls by 0.25% — from 7.00% to 6.75%.

Bridge Loan

A bridge loan is a short-term loan that helps homeowners buy a new home before selling their current one. It 'bridges' the gap in financing by using equity from your existing home. Bridge loans typically last 6–12 months and carry higher interest rates than standard mortgages.

Buydown

A buydown is a financing arrangement where upfront cash payments reduce the mortgage interest rate, either temporarily or permanently. A temporary buydown (such as a 2-1 buydown) lowers the rate for the first 1–3 years. A permanent buydown purchases a lower rate for the life of the loan through discount points.

Bank Statement Loan

A bank statement loan is a non-QM mortgage that qualifies self-employed borrowers based on 12–24 months of bank deposits rather than W-2s or tax returns. Because self-employed borrowers often show low taxable income after deductions, bank statement loans fill a critical gap — and they are almost exclusively offered by direct lenders and non-QM specialists, not traditional banks.

C

Cash-Out Refinance

A cash-out refinance replaces your existing mortgage with a new, larger loan — and you receive the difference in cash. For example, if your home is worth $500,000 and you owe $250,000, you might refinance into a $350,000 loan and pocket $100,000. The cash can be used for renovations, debt consolidation, or any other purpose.

Closing Costs

Closing costs are the fees and expenses paid when a real estate transaction finalizes, typically ranging from 2% to 5% of the loan amount. They include lender fees, title insurance, appraisal, government recording fees, and prepaid items like homeowners insurance and property tax escrow. On a $350,000 loan, expect to pay $7,000–$17,500 at closing.

Closing Disclosure

The Closing Disclosure is the official five-page document your lender must provide at least 3 business days before your loan closes, showing the final terms, fees, and cash needed to close. It is the final version of your Loan Estimate and the document you sign at closing. Review it carefully line by line before your closing appointment.

Conforming Loan

A conforming loan is a conventional mortgage that meets the purchase standards set by Fannie Mae and Freddie Mac, including loan amount limits set by the Federal Housing Finance Agency (FHFA). For 2025, the conforming loan limit is $806,500 in most U.S. markets. Conforming loans typically offer lower interest rates than jumbo loans.

Conventional Loan

A conventional loan is any mortgage not insured or guaranteed by a federal government agency. Unlike FHA, VA, or USDA loans, conventional loans are backed solely by the lender and private market. They typically require a minimum 3–5% down payment and a credit score of at least 620, and they offer the broadest range of property types and loan purposes.

Credit Score

A credit score is a three-digit number (typically 300–850) that represents your creditworthiness based on your borrowing history. For mortgages, lenders use FICO scores from all three bureaus and typically use the middle score. Higher scores qualify for lower interest rates — even a 40-point difference can save tens of thousands of dollars over a loan's life.

Credit & Finance

Correspondent Lender

A correspondent lender originates and closes mortgage loans in its own name using its own funds, then sells those closed loans to a larger investor or aggregator. Correspondent lenders look like a direct lender to the borrower at closing, but they typically operate under approved seller agreements with entities like Fannie Mae, Freddie Mac, or large bank investors who purchase the loan shortly after funding.

Construction Loan

A construction loan is a short-term mortgage used to finance the building of a new home or major renovation. Funds are disbursed in draws as construction milestones are reached, rather than in a lump sum at closing. Construction loans are frequently provided by direct lenders — including community banks, regional mortgage companies, and specialty lenders — because the draw management and inspection process requires hands-on involvement that wholesale channels struggle to accommodate.

Conditional Approval

A conditional approval is a mortgage underwriting decision issued by a direct lender's underwriter stating that the loan is approved subject to the borrower satisfying a list of specific conditions. The underwriter has reviewed the credit file and determined the loan meets guidelines — but additional documentation or clarifications are required before a final clear-to-close can be issued. Conditional approvals are the most common outcome of underwriting at any direct lender.

Clear to Close

Clear to close (CTC) is the final approval milestone in the mortgage process, issued by a direct lender's underwriting team after all conditions have been satisfied. It means the loan is fully approved, loan documents are ready to be drawn, and the closing can be scheduled. Receiving a clear to close from your direct lender means the credit risk decision is complete and only logistical steps remain before funding.

D

Debt-to-Income Ratio (DTI)

Debt-to-income ratio (DTI) is the percentage of your gross monthly income that goes toward debt payments, including your proposed mortgage. Lenders use DTI to measure your ability to manage monthly payments. Most conventional loans require a DTI of 45% or below; FHA loans may allow up to 57% with compensating factors.

Credit & Finance

Deed of Trust

A deed of trust is a legal document used in many states instead of a traditional mortgage, creating a lien on your property as security for your home loan. It involves three parties: the borrower (trustor), the lender (beneficiary), and a neutral third party (trustee) who holds title until the loan is paid off. If you default, the trustee can sell the property without going through court.

Default

A mortgage default occurs when a borrower fails to meet the legal obligations of their loan agreement, most commonly by missing payments. Most loans enter default after 90 days of missed payments, triggering the lender's right to begin foreclosure proceedings. Default has severe consequences for your credit score and can result in loss of your home.

Discount Points

Discount points are upfront fees paid to the lender at closing in exchange for a lower interest rate. One point equals 1% of the loan amount and typically reduces the rate by 0.25%. Paying points 'buys down' your rate and makes sense if you plan to stay in the home long enough to recoup the upfront cost through lower monthly payments.

Down Payment

A down payment is the portion of the home's purchase price you pay upfront, with the mortgage covering the rest. Common down payment amounts range from 3% (conventional) to 3.5% (FHA) to 20% (to avoid PMI). VA and USDA loans offer 0% down payment options for eligible borrowers. The more you put down, the smaller your loan and monthly payment.

Credit & Finance

Direct Lender

A direct lender is a mortgage company or bank that lends its own money directly to borrowers without using a middleman. Unlike a mortgage broker, a direct lender underwrites, approves, and funds your loan in-house, giving you one point of contact from application through closing. Working with a direct lender typically means faster decisions, fewer fees, and greater transparency because there is no third party marking up the rate.

Direct Lending

Direct lending is the practice of a financial institution extending mortgage credit directly to borrowers without using an intermediary such as a broker or correspondent. In direct lending, the lender controls origination, underwriting, funding, and often servicing under one roof. This model is the foundation on which most consumer-focused mortgage companies and retail banks operate.

DSCR Loan

A DSCR loan (debt service coverage ratio loan) qualifies real estate investors based on the rental income of the property rather than the borrower's personal income. If the property's gross rental income covers the monthly mortgage payment — typically at a ratio of 1.0x or higher — the borrower qualifies. DSCR loans are offered almost exclusively by direct lenders and non-QM specialty shops, making them a go-to product for investors who want to scale without income documentation hurdles.

E

Earnest Money

Earnest money is a good-faith deposit a buyer submits with their purchase offer to show the seller they are serious. Typically 1–3% of the purchase price, it is held in escrow and applied toward the down payment or closing costs at settlement. If the buyer backs out without a valid contingency, the seller may keep the earnest money.

Equity

Home equity is the portion of your home's value that you actually own — the difference between its current market value and what you still owe on your mortgage. If your home is worth $500,000 and you owe $300,000, your equity is $200,000 (40%). Equity builds through price appreciation, mortgage payments, and home improvements.

Credit & Finance

Escrow

Escrow refers to a neutral third-party arrangement where money or documents are held until specific conditions are met. In real estate, escrow is used twice: during the purchase (holding the earnest money and facilitating the transaction) and throughout the mortgage (an ongoing account where taxes and insurance are held). 'Closing escrow' means the transaction has finalized.

Escrow Account

A mortgage escrow account is a holding account managed by your loan servicer that collects a portion of your monthly payment to cover property taxes and homeowners insurance. When those bills come due, the servicer pays them directly. Escrow accounts ensure these critical payments are never missed and are required on most low-down-payment loans.

F

FHA Loan

An FHA loan is a government-backed mortgage insured by the Federal Housing Administration that allows buyers to purchase a home with as little as 3.5% down and credit scores as low as 580. FHA loans are popular with first-time homebuyers because of their flexible qualifying requirements. The tradeoff is mandatory mortgage insurance premiums (MIP) for the life of the loan in most cases.

Fixed-Rate Mortgage

A fixed-rate mortgage has an interest rate that stays the same for the entire loan term — your principal and interest payment never changes. The most common terms are 30 years and 15 years. Fixed-rate mortgages offer predictability and protection against rising rates, making them the most popular mortgage type in the U.S.

Flood Insurance

Flood insurance covers damage caused by flooding — including storm surge, river overflow, and heavy rain runoff — which is not covered by standard homeowners insurance. If your home is in a FEMA-designated Special Flood Hazard Area (SFHA), your lender will require flood insurance as a condition of your mortgage. Policies are available through the National Flood Insurance Program (NFIP) and private insurers.

Forbearance

Forbearance is a temporary agreement between you and your mortgage servicer to pause or reduce your mortgage payments during a financial hardship. Forbearance is not forgiveness — missed payments must be repaid, either in a lump sum, through a repayment plan, or via loan modification. It protects your credit from foreclosure while you get back on your feet.

Foreclosure

Foreclosure is the legal process by which a lender takes ownership of a property after a borrower fails to make mortgage payments. It results in the forced sale of the home to recover the outstanding loan balance. Foreclosure severely damages credit scores, may result in a deficiency judgment, and can bar you from getting a new mortgage for 3–7 years.

Funding

Funding in mortgage lending is the moment when a direct lender wires the loan proceeds to the closing agent or escrow company, completing the transaction. For a purchase, funding allows the escrow company to disburse funds to the seller and record the deed. For a refinance, funding triggers the rescission period (if applicable) before proceeds are disbursed. Funding is the final step in the direct lender's origination process.

G

Gift Funds

Gift funds are money given to a homebuyer by a family member, employer, or organization to help cover a down payment or closing costs. Most loan programs allow gift funds from eligible donors, but the gift must be documented with a gift letter stating no repayment is required. Loans disguised as gifts will disqualify you from financing.

Credit & Finance

Good Faith Estimate (GFE)

The Good Faith Estimate was the pre-2015 document that estimated a borrower's closing costs and loan terms. It was replaced by the Loan Estimate as part of the TRID regulations effective October 2015. You may still hear older borrowers or real estate professionals reference the GFE, but today's equivalent is the Loan Estimate.

Government-Backed Loan

A government-backed loan is a mortgage insured or guaranteed by a federal agency, reducing the lender's risk and allowing more flexible qualification standards. The three main types are FHA loans (Federal Housing Administration), VA loans (Department of Veterans Affairs), and USDA loans (U.S. Department of Agriculture). Each program serves different borrower groups and property locations.

Graduated Payment Mortgage

A graduated payment mortgage starts with lower monthly payments that increase at set intervals (usually annually) for a fixed period, then level off for the rest of the loan. This structure helps buyers who expect their income to grow over time. These loans are uncommon today but were more popular in the 1980s and remain available through some FHA programs.

H

HELOC (Home Equity Line of Credit)

A HELOC is a revolving line of credit secured by your home equity, working much like a credit card with your home as collateral. During the draw period (typically 10 years), you can borrow, repay, and borrow again up to your credit limit. After the draw period, you enter a repayment period (typically 20 years) where you pay down the outstanding balance.

Home Equity Loan

A home equity loan lets you borrow a lump sum of money against the equity in your home, repaid over a fixed term at a fixed interest rate. It's often called a 'second mortgage' because it's in addition to your primary mortgage. Home equity loans are commonly used for large expenses like home renovations, debt consolidation, or education costs.

Home Inspection

A home inspection is a professional examination of a property's physical condition, conducted by a licensed inspector before purchase. Inspectors evaluate the structure, roof, foundation, electrical, plumbing, HVAC, and other systems. The inspection report helps buyers identify problems, negotiate repairs, or decide whether to proceed with the purchase.

Homeowners Association (HOA)

A homeowners association (HOA) is an organization that manages and enforces rules in a community of condominiums, townhomes, or planned developments. HOA fees pay for shared amenity maintenance, landscaping, and administration. Monthly fees typically range from $100 to $600+ and are counted in your debt-to-income ratio when qualifying for a mortgage.

Homeowners Insurance

Homeowners insurance (also called hazard insurance) covers your home against damage from fire, storms, theft, and other covered perils, and provides liability protection if someone is injured on your property. Lenders require it as a condition of your mortgage. Annual premiums average $1,500–$2,500 but vary significantly by location, coverage, and home value.

HUD (U.S. Department of Housing and Urban Development)

HUD is the federal government agency that oversees housing policy, administers the FHA loan program, enforces fair housing laws, and provides housing assistance to low-income Americans. When mortgage professionals say 'HUD,' they often refer to FHA loans, the HUD-1 settlement statement, or HUD-approved housing counselors who provide free financial guidance to homebuyers.

Hard Money Loan

A hard money loan is a short-term, asset-based mortgage funded by a private direct lender rather than a bank or institutional lender. Approval is based primarily on the value of the collateral property — not the borrower's credit score or income — and loans typically close in 7–14 days. Hard money direct lenders serve real estate investors who need speed, flexibility, or financing for properties that don't qualify for conventional programs.

Home Equity Agreement

A home equity agreement (HEA) is a financial product in which an investor provides a homeowner a lump sum of cash today in exchange for a share of the home's future appreciation — not a loan, and not a direct lender product. There are no monthly payments, no interest charges, and no debt obligation. The homeowner settles the agreement by selling the home, refinancing, or buying out the investor within a set term, typically 10–30 years.

I

Interest-Only Mortgage

An interest-only mortgage allows you to pay only the interest on your loan for an initial period (typically 5–10 years), resulting in lower payments during that time but no reduction in your principal balance. After the interest-only period ends, payments jump significantly as you begin repaying principal and interest over the remaining term.

Interest Rate

Your mortgage interest rate is the annual percentage the lender charges for borrowing the loan principal, expressed as a percentage. It directly determines your monthly principal and interest payment. A half-point difference in rate (e.g., 7.0% vs 6.5%) on a $400,000 loan changes your monthly payment by approximately $130 and total interest by roughly $46,000 over 30 years.

Interest Rate Lock

An interest rate lock is a lender's commitment to hold a specific interest rate for a defined period (typically 30–60 days) while your loan processes, protecting you from rate increases during underwriting. Rate locks are typically free for standard periods; longer locks (60–90 days) may cost 0.125–0.5% of the loan amount. Locks expire if you don't close by the deadline.

Investment Property Loan

An investment property loan finances the purchase or refinance of real estate held for rental income or capital appreciation rather than owner-occupancy. Investment property loans carry stricter requirements than primary residence mortgages — typically 20%–25% down, higher rates, and lower debt-to-income ceilings — and are available from both conventional direct lenders and specialty non-bank lenders offering DSCR and non-QM products.

J

Jumbo Loan

A jumbo loan is a mortgage that exceeds the conforming loan limits set by the FHFA — above $806,500 in most U.S. markets in 2025. Because jumbo loans can't be sold to Fannie Mae or Freddie Mac, lenders hold them in their own portfolios and typically require stronger qualifications: higher credit scores, larger down payments, and lower debt-to-income ratios.

L

Lien

A lien is a legal claim against a property that gives a creditor the right to the property if the debt is not paid. Your mortgage creates a lien on your home — the lender can foreclose if you default. Other common liens include property tax liens, HOA liens, and mechanic's liens from unpaid contractors. A clear title (no unexpected liens) is required for most home sales.

Loan Estimate

The Loan Estimate is a standardized three-page document your lender must provide within 3 business days of receiving your mortgage application. It shows the loan amount, interest rate, projected monthly payment, and estimated closing costs. Use it to compare offers from multiple lenders — the format is identical across all lenders, making side-by-side comparison easy. Whether you apply through a direct lender or a broker, you are entitled to the same standardized Loan Estimate, which makes it straightforward to compare the true cost of each offer.

Loan Officer

A loan officer (also called a mortgage loan originator or MLO) is a licensed professional who helps borrowers find, apply for, and close mortgage loans. They work for a bank, credit union, or mortgage company and guide you through the application, documentation, and approval process. They are licensed by the NMLS (Nationwide Multistate Licensing System).

Loan-to-Value Ratio (LTV)

Loan-to-value ratio (LTV) is the percentage of a home's appraised value that you're borrowing. It's calculated by dividing the loan amount by the appraised value. An 80% LTV on a $500,000 home means you're borrowing $400,000. LTV is one of the most important factors in mortgage pricing — lower LTV means less risk for the lender and typically a lower rate for you.

Credit & Finance

Lock Period

The lock period is the length of time your lender guarantees your interest rate after you lock it — typically 30, 45, or 60 days. If your loan closes within the lock period, you receive the locked rate. If it doesn't close in time, you'll need to pay a lock extension fee or accept the current market rate, whichever applies.

Loan Servicing

Loan servicing refers to the administrative management of your mortgage after closing—collecting monthly payments, managing escrow accounts for taxes and insurance, handling customer service, and processing payoffs. Your loan servicer may be different from your original lender, as servicing rights are frequently sold in the secondary market.

Loan Servicing

Loan servicing is the ongoing administration of a mortgage after it closes — collecting monthly payments, managing escrow accounts, handling customer service, and processing payoffs. Loan servicing may be performed by the direct lender who originated your mortgage or by a separate servicing company to whom the servicing rights were sold. Understanding who services your loan matters because the servicer is your point of contact for the life of the loan.

Loan Processor

A loan processor is a mortgage professional employed by a direct lender who collects, organizes, and verifies all documents in a borrower's loan file before submitting it to underwriting. The processor is the operational engine between the loan officer who takes the application and the underwriter who makes the credit decision. At a well-run direct lender, a skilled processor is the primary driver of on-time closings.

M

Mortgage

A mortgage is a loan used to purchase or refinance real estate, where the property itself serves as collateral. The lender provides funds upfront, and you repay the loan with interest over a set term—typically 15 or 30 years. If you stop making payments, the lender can take the property through foreclosure.

Mortgage Broker

A mortgage broker is a licensed intermediary who connects borrowers with multiple lenders to find the best loan terms. Unlike a bank loan officer who can only offer their employer's products, a broker shops your application across dozens of lenders. Brokers are paid through lender-paid compensation or borrower-paid fees at closing.

Mortgage Insurance

Mortgage insurance protects the lender—not you—if you default on your loan. It's required on conventional loans when your down payment is less than 20% (called PMI) and on all FHA loans regardless of down payment size. The cost ranges from 0.5% to 2% of the loan amount annually, added to your monthly payment.

Mortgage Note

A mortgage note (also called a promissory note) is the legal document you sign that obligates you to repay the loan. It spells out the loan amount, interest rate, repayment schedule, and consequences for default. The mortgage note is your personal promise to pay; the mortgage or deed of trust is the document that pledges the property as collateral.

Mortgage Rate

A mortgage rate is the annual interest rate charged on a home loan, expressed as a percentage of the loan balance. Even a small difference in rate has a large impact on total cost: on a $400,000 30-year loan, a rate of 6.5% vs. 7.5% saves approximately $250/month and over $90,000 over the life of the loan.

Mortgage Banker

A mortgage banker is a company or individual that originates, underwrites, and funds mortgage loans using its own capital or warehouse lines of credit. Mortgage bankers are typically direct lenders — they fund loans in their own name rather than brokering applications to third-party lenders. After funding, mortgage bankers usually sell the loans on the secondary market while retaining or transferring the servicing rights.

Mortgage Pipeline

A mortgage pipeline is the collection of loan applications a direct lender has accepted and is actively processing but has not yet closed and funded. Pipeline management is critical for a direct lender because rate movements between application and closing create profit-and-loss exposure that must be hedged. For borrowers, understanding the pipeline concept explains why direct lenders manage lock expirations and closing timelines carefully.

Mortgage Margin

A mortgage margin is the fixed percentage a direct lender adds to an index (such as SOFR or the 1-year Treasury) to calculate the interest rate on an adjustable-rate mortgage (ARM). The margin is set at loan origination and does not change for the life of the loan. It is the direct lender's built-in profit spread on an ARM product, similar to a fixed markup on a variable-price input.

N

Negative Amortization

Negative amortization occurs when your monthly payment is less than the interest owed, causing your loan balance to grow instead of shrink. The unpaid interest is added to the principal, so you can end up owing more than you originally borrowed. These loans are rare today but were common in the lead-up to the 2008 financial crisis.

No-Closing-Cost Mortgage

A no-closing-cost mortgage lets you avoid paying thousands of dollars in upfront closing costs by rolling them into your loan balance or accepting a slightly higher interest rate. The costs don't disappear—you pay them over time through either a larger loan or more interest. These loans work best when you plan to sell or refinance within a few years.

Non-Conforming Loan

A non-conforming loan is a mortgage that doesn't meet the purchase guidelines set by Fannie Mae or Freddie Mac, typically because the loan amount exceeds the conforming limit or because the borrower's profile doesn't fit standard requirements. Jumbo loans and Non-QM loans are the two main types of non-conforming loans.

Non-QM Loan

A Non-QM (Non-Qualified Mortgage) loan is a home loan that doesn't meet the Consumer Financial Protection Bureau's Qualified Mortgage standards. These loans serve borrowers who can genuinely afford a home but can't document income through traditional pay stubs—like self-employed individuals, real estate investors, or those with recent credit events.

Note Rate

The note rate is the actual interest rate stated on your mortgage note—the rate used to calculate your monthly principal and interest payment. It differs from the APR, which includes fees and gives a broader picture of loan cost. The note rate is the number that directly determines how much you pay each month.

Non-Bank Lender

A non-bank lender is a mortgage company that originates and funds home loans without holding a federal bank charter or taking customer deposits. Non-bank lenders are often direct lenders — they fund loans from warehouse credit lines rather than deposit accounts, and many operate entirely outside the traditional banking system. They now originate the majority of U.S. mortgages.

NMLS

The Nationwide Multistate Licensing System (NMLS) is the federal and state licensing platform that registers mortgage lenders, mortgage brokers, and individual loan originators. Both direct lenders and brokers must be registered with NMLS, and their license numbers must appear on all advertising, loan documents, and correspondence. Borrowers can verify any direct lender or broker's license status, complaints history, and ownership information for free at nmlsconsumeraccess.org.

O

Origination Fee

An origination fee is a charge by the lender for processing and underwriting your mortgage application, typically expressed as a percentage of the loan amount or a flat dollar amount. On a $350,000 loan, a 1% origination fee equals $3,500 paid at closing. This fee is one of several you'll see itemized on your Loan Estimate.

Owner Financing

Owner financing (also called seller financing) is when the home seller acts as the lender, accepting installment payments from the buyer instead of a lump sum at closing. The buyer makes monthly payments directly to the seller, who holds a mortgage on the property. This can help buyers who don't qualify for traditional bank loans.

P

PITI

PITI stands for Principal, Interest, Taxes, and Insurance—the four components that make up your total monthly mortgage payment. Lenders use your full PITI payment (not just principal and interest) when calculating your debt-to-income ratio. On a $350,000 home, PITI might total $2,800/month even if principal and interest is only $2,100.

PMI

PMI (Private Mortgage Insurance) is required on conventional loans when your down payment is less than 20% of the home's purchase price. It protects the lender if you default, and costs 0.5–1.5% of the loan amount annually. On a $350,000 loan at 0.8% PMI, that's $233/month added to your payment—until you reach 20% equity.

Points

Mortgage points are upfront fees paid to the lender to reduce your interest rate—one point equals 1% of the loan amount. Paying one point on a $400,000 loan costs $4,000 upfront and typically reduces your rate by about 0.25%. Points make sense if you plan to keep the loan long enough to recoup the upfront cost through lower monthly payments.

Pre-Approval

A mortgage pre-approval is a lender's conditional commitment to loan you a specific amount, based on a verified review of your credit, income, assets, and employment. Pre-approval is stronger than pre-qualification because the lender has actually reviewed your documents. Sellers take pre-approval letters seriously as evidence you can close.

Pre-Qualification

Mortgage pre-qualification is an informal estimate of how much you might be able to borrow, based on income, debt, and assets you report without documentation. It requires no hard credit pull and takes only minutes. Pre-qualification is a useful starting point but carries far less weight with sellers than a full pre-approval.

Prepayment Penalty

A prepayment penalty is a fee charged by some lenders if you pay off your mortgage early—through refinancing, selling, or making large extra payments—within a specified time period, typically 2–5 years. Most conventional and government loans today do not have prepayment penalties, but they can appear on Non-QM and some subprime loans.

Prime Rate

The prime rate is a benchmark interest rate that U.S. banks use as a reference for setting rates on consumer loans, credit cards, and some adjustable-rate mortgages. It's typically set at 3 percentage points above the Federal Reserve's federal funds rate. When the Fed raises or lowers rates, the prime rate moves in lockstep.

Principal

Principal is the original amount you borrowed on your mortgage, or the remaining balance you still owe. Each monthly payment you make includes two parts: interest (the cost of borrowing) and principal (reducing what you owe). In the early years of a mortgage, most of your payment goes toward interest, with only a small portion reducing principal.

Credit & Finance

Private Mortgage Insurance

Private Mortgage Insurance (PMI) is insurance on conventional loans required when the buyer's down payment is less than 20%. PMI protects the lender—not the buyer—if the borrower defaults. It costs 0.5–1.5% of the loan amount annually and is added to your monthly mortgage payment until you reach 20% equity.

Property Tax

Property tax is an annual tax levied by local governments based on the assessed value of your home. It's a major part of homeownership costs, typically ranging from 0.5% to 2.5% of assessed value depending on where you live. Property taxes fund local schools, roads, fire departments, and other public services.

Par Rate

Par rate is the interest rate at which a mortgage can be funded with zero discount points paid by the borrower and zero lender credits — it is the direct lender's baseline price for a given loan scenario. Rates below par require the borrower to pay points to buy the rate down; rates above par generate lender credits that offset closing costs. Par rate is the most commonly quoted rate in mortgage advertising and represents the true cost-neutral offer from a direct lender.

Q

Qualifying Ratios

Qualifying ratios are the debt-to-income thresholds lenders use to determine how much mortgage you can afford. The two key ratios are the front-end ratio (housing costs ÷ gross income) and the back-end ratio (all debt payments ÷ gross income). Conventional loans typically require a back-end ratio of 43–50% or lower.

Quit-Claim Deed

A quit-claim deed transfers whatever ownership interest one person has in a property to another person—with no warranties or guarantees about the title. Unlike a warranty deed, the grantor makes no promises that the title is clear or that they actually own the property. Quit-claim deeds are most common for transfers between family members, divorces, or adding a spouse to title.

R

Rate Lock

A rate lock is a lender's guarantee to hold a specific interest rate for a set period—typically 30, 45, or 60 days—while your loan is in process. If market rates rise before you close, your locked rate is protected. If rates fall, you're stuck with the higher rate unless you have a float-down option.

Real Estate Settlement Procedures Act

The Real Estate Settlement Procedures Act (RESPA) is a federal law that regulates mortgage lending practices, requiring lenders to provide clear disclosures about settlement costs and prohibiting kickbacks between service providers. RESPA is why you receive the Loan Estimate within 3 days of applying and the Closing Disclosure 3 days before closing.

Refinance

Refinancing means replacing your existing mortgage with a new one—typically to get a lower interest rate, change your loan term, or access home equity. A rate-and-term refinance changes your rate or term without giving you cash. A cash-out refinance allows you to borrow more than you owe and receive the difference in cash.

Reverse Mortgage

A reverse mortgage is a loan for homeowners age 62 or older that lets you convert home equity into cash without making monthly mortgage payments. Instead of you paying the lender, the lender pays you. The loan balance grows over time and is repaid when you sell the home, move out, or die.

Right of Rescission

The right of rescission is a federal consumer protection that gives you 3 business days to cancel certain mortgage transactions—specifically, refinances, HELOCs, and second mortgages on your primary residence—after signing loan documents. If you change your mind, you can cancel with no penalty. This right does not apply to purchase mortgages.

Retail Lender

A retail lender originates mortgage loans directly with individual consumers through its own loan officers, branch network, or online platform. Retail lending is effectively synonymous with direct lending — the lender controls the full customer relationship from application through closing without any intermediary. Banks, credit unions, and non-bank mortgage companies that advertise directly to homebuyers all operate in the retail channel.

Rate Sheet

A rate sheet is a daily pricing document published by a direct lender that shows available interest rates for every loan product, paired with the corresponding points or credits at each rate level. Rate sheets are how direct lenders communicate their current pricing to loan officers, and they change every business day — sometimes multiple times — in response to movements in the mortgage-backed securities market.

S

Second Mortgage

A second mortgage is an additional loan taken against a home that already has a primary mortgage. It's subordinate to the first mortgage, meaning the original lender gets paid first in a foreclosure. Second mortgages include home equity loans (fixed-rate, lump-sum) and home equity lines of credit (variable-rate, revolving).

Seller Concessions

Seller concessions are when the home seller agrees to pay some of the buyer's closing costs as part of the purchase negotiation. Rather than reducing the sale price, the seller contributes a set dollar amount or percentage toward the buyer's costs at closing. Concessions are limited by loan type—typically 3–9% of the purchase price depending on down payment and loan program.

Short Sale

A short sale occurs when a homeowner sells their home for less than the outstanding mortgage balance, with the lender's approval. The lender agrees to accept the sale proceeds as full or partial satisfaction of the debt rather than proceeding to foreclosure. Short sales typically damage credit less than foreclosure but are a lengthy, complex process.

Subordination

Subordination is the process of one lender agreeing to be in a lower lien position relative to another lender. In most cases, this means a second mortgage lender agrees to remain in second position when the first mortgage is refinanced. Without subordination, a refinance could disrupt the lien priority that protects existing lenders.

Survey

A property survey is a professional measurement and mapping of a property's boundaries, structures, and features conducted by a licensed land surveyor. It identifies where your property lines are, notes any encroachments (neighbor's fence on your land), and is often required by lenders and title insurance companies at closing.

T

Title

Title is the legal concept of ownership of a property—who has the right to possess, use, and transfer it. When you purchase a home, title is transferred to you through a deed. A clear title means no other parties have valid claims against the property. Clouded title means there are outstanding liens, judgments, or ownership disputes that must be resolved.

Title Insurance

Title insurance protects buyers and lenders against financial loss from defects in a property's title that existed before closing—like unknown liens, fraud, forgery, or errors in public records. Unlike other insurance, you pay a one-time premium at closing and the policy remains in effect as long as you own the home.

Title Search

A title search is a detailed examination of public records to trace the history of a property's ownership and identify any claims, liens, or defects that could affect the buyer's rights. A title company or attorney conducts the search before closing, reviewing recorded deeds, court judgments, tax records, and other documents.

Truth in Lending Act

The Truth in Lending Act (TILA) is a federal law that requires lenders to disclose the true cost of credit in a standardized format, including the annual percentage rate (APR), total finance charge, and total loan cost. TILA gives you the right to rescind certain loans within 3 days and ensures you can compare loan offers accurately.

Table Funding

Table funding is a mortgage transaction in which a loan closes in the mortgage broker's name at the closing table, but the actual funds come from a wholesale lender or other third-party direct lender. The loan is simultaneously assigned to the funding lender at closing, making it in effect a pre-arranged sale. Table funding is how most broker-originated transactions are structured and represents a key distinction between broker transactions and true direct lender closings.

U

Underwriting

Underwriting is the process by which a lender evaluates your loan application to determine if you qualify for the requested mortgage. An underwriter reviews your credit history, income, assets, and the property's appraised value against the loan program's guidelines. Underwriting ends with an approval, approval with conditions, suspension, or denial. When you work with a direct lender, underwriting is handled entirely in-house, which can mean faster turnaround times and more direct communication about any conditions.

USDA Loan

A USDA loan is a government-backed mortgage issued by the U.S. Department of Agriculture for buyers in eligible rural and suburban areas. USDA loans offer 100% financing (no down payment required) and below-market interest rates, with income limits that ensure the program serves low-to-moderate income borrowers.

V

VA Loan

A VA loan is a mortgage benefit for active-duty service members, veterans, and eligible surviving spouses, guaranteed by the U.S. Department of Veterans Affairs. VA loans offer no down payment, no private mortgage insurance, competitive rates, and more flexible qualification standards. The VA guarantee protects lenders from default losses.

Variable Rate

A variable rate (also called an adjustable rate) is an interest rate that changes periodically based on a market index, unlike a fixed rate that stays constant. Variable-rate mortgages start with a lower initial rate that adjusts up or down at set intervals. Your monthly payment changes when the rate adjusts, creating uncertainty but also potential savings.

W

Warehouse Lending

Warehouse lending is a short-term line of credit that mortgage lenders use to fund loans before selling them on the secondary market. Think of it as the lender's 'inventory financing'—they borrow money from a warehouse bank to fund your mortgage, then repay the warehouse bank when they sell your loan to an investor like Fannie Mae.

Wraparound Mortgage

A wraparound mortgage is a seller-financing arrangement where the seller keeps their existing mortgage in place and issues a new, larger mortgage to the buyer that 'wraps around' the original loan. The buyer makes payments to the seller, who continues paying the original mortgage. The seller profits from the spread between the two interest rates.

Wholesale Lender

A wholesale lender is a mortgage company that funds loans originated by third-party mortgage brokers rather than working directly with consumers. The wholesale lender provides pricing, guidelines, and capital; the broker handles the borrower relationship. Because wholesale lenders never interact with the end borrower, they are the opposite of a direct lender in the distribution model.

Y

Yield Spread Premium

Yield spread premium (YSP) is the compensation a wholesale lender pays to a mortgage broker for originating a loan at an above-par interest rate. When a broker places a borrower in a rate higher than the par rate, the lender pays the broker the difference in value — the yield spread. YSP does not exist in a direct lender relationship because there is no broker intermediary to compensate; the direct lender's entire rate offering goes directly to the borrower.

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