Mortgage Glossary

Amortization

Paying off a loan through scheduled payments over time. With a fixed-rate mortgage, early payments go mostly to interest, and later payments go mostly to principal.

Annual Percentage Rate (APR)

The yearly cost of a loan expressed as a rate. It includes the interest rate plus certain fees and charges, which makes it useful for comparing offers. It is not the same as your interest rate, and it isn't used to calculate your monthly payment.

Appraisal

A professional estimate of a property's market value, usually ordered by the lender. It helps the lender confirm the home supports the loan amount. Some programs also have property condition standards.

Closing Costs

Fees and charges paid to complete a mortgage and transfer ownership, such as lender fees, title charges, recording fees and prepaid items. They're shown on your Loan Estimate and later on your Closing Disclosure.

Conventional Loan

A mortgage that isn't insured or guaranteed by a government agency such as FHA, VA or USDA. Conforming conventional loans follow Fannie Mae and Freddie Mac guidelines and loan limits. Conventional loans

Debt-to-Income Ratio (DTI)

Your monthly debt payments divided by your gross monthly income. Lenders use it as one way to measure whether you can manage a new payment. Acceptable ratios vary by program and by the rest of your financial picture.

Down Payment

The part of the purchase price you pay upfront, rather than borrowing it. The required amount depends on the loan program and your situation. Some eligible borrowers may qualify for programs with little or no down payment.

Earnest Money

A deposit you make when your offer on a home is accepted, to show you're serious. It's usually held by a title or escrow company and typically applied toward your costs at closing. The purchase contract sets when it can be refunded.

Escrow

A term used in two ways. At purchase, a neutral third party holds funds and documents until closing. After closing, an escrow (or impound) account is where the lender collects part of your monthly payment to pay property taxes and insurance for you.

FHA Loan

A mortgage insured by the Federal Housing Administration and made by an approved lender. FHA loans include mortgage insurance and have occupancy and property standards. FHA loans

Fixed-Rate Mortgage

A mortgage whose interest rate stays the same for the whole term, so principal and interest payments don't change. Taxes and insurance in an escrow payment can still change.

Homeowners Insurance

Insurance that covers the home and your belongings against certain types of damage, and includes liability coverage. Lenders require it for a mortgaged property. Flood insurance is separate and may be required in some areas.

Loan Estimate

A standard three-page federal form that lenders must provide within three business days of receiving your application. It shows your estimated rate, payment and closing costs, so you can compare offers.

Loan-to-Value (LTV)

Your loan amount divided by the home's appraised value or purchase price, whichever is lower. For example, a $360,000 loan on a $400,000 home is 90% LTV. LTV affects pricing and whether mortgage insurance is needed.

Mortgage Insurance

Insurance that protects the lender if a borrower stops paying. Conventional loans with less than 20% down usually require private mortgage insurance (PMI). FHA loans have their own mortgage insurance premiums. VA and USDA loans use different fees.

Preapproval

A lender's review of your credit, income and assets to show how much it may be willing to lend, subject to conditions. It's stronger than prequalification, but it isn't a final approval or a commitment to lend. Mortgage preapproval

Prequalification

An early estimate of what you might borrow, often based on information you report yourself. Lenders use the terms differently, so ask what review was actually done.

Principal

The amount you borrow, or the part of it you still owe. Each payment reduces principal and also pays interest.

Property Taxes

Taxes charged by local governments based on a property's assessed value. They're often paid through an escrow account and can change from year to year.

Rate Lock

A lender's agreement to hold a specific interest rate for a set period while your loan is completed. A lock generally holds only if your application details don't change and you close before it expires.

Refinance

Replacing your current mortgage with a new one, for example to change the rate, the term or the loan type, or to take cash out. Refinancing has costs, so compare them with the expected benefit. Refinancing

Title

Legal ownership of a property. A title search checks for problems such as liens. Title insurance protects the lender, and optionally the owner, against covered title defects.

Underwriting

The lender's detailed review of your application, documents, credit and property to decide whether the loan meets its requirements and the program's requirements. Underwriters may ask for more information before making a decision.

USDA Loan

A mortgage guaranteed by USDA Rural Development for eligible households buying an eligible home in a qualifying area. Both the property's location and the household's income must meet current USDA requirements. USDA Rural Development loans

VA Loan

A mortgage partially guaranteed by the U.S. Department of Veterans Affairs for eligible service members, veterans and certain surviving spouses. It's used for a primary residence and may require a funding fee unless you're exempt. VA loans

Official references

Program information used on this page

Program information can change. These official resources support the specific contexts described below; confirm current rules before relying on them.

• Consumer Financial Protection Bureau: Loan Estimate explainer

  Explains the official Loan Estimate form, closing costs and estimated cash to close.

• Consumer Financial Protection Bureau: Review Loan Estimates

  Explains rate locks and how to compare Loan Estimates.

• Consumer Financial Protection Bureau: What is a debt-to-income ratio?

  Defines debt-to-income as monthly debt payments divided by gross monthly income, and explains how lenders use it.

• Consumer Financial Protection Bureau: Conventional loans

  Defines conventional financing and explains conforming and non-conforming categories.

• U.S. Department of Housing and Urban Development: FHA Single Family Housing Policy Handbook 4000.1

  Supports FHA insurance, lender origination, occupancy, property, and mortgage-insurance concepts.

• U.S. Department of Veterans Affairs: VA home loan programs

  Our VA loan guide covers the VA guaranty, borrower eligibility, purchase and refinance options, and primary residence requirements.

• USDA Rural Development: Single Family Housing Guaranteed Loan Program

  Supports the guaranteed-loan purpose, primary-residence focus, approved-lender process, and borrower/property eligibility.