Resources
Mortgage Glossary
Plain-language definitions for the terms you will encounter during the homebuying and mortgage process.
Amortization
The process of paying off a loan through regular payments over time. Each payment covers both interest and principal, with the interest portion decreasing and the principal portion increasing over the life of the loan.
APR (Annual Percentage Rate)
The total cost of borrowing expressed as a yearly rate, including the interest rate plus certain fees. APR is broader than the interest rate and allows for more apples-to-apples comparison between loan offers.
Appraisal
An independent assessment of a property's market value, conducted by a licensed appraiser. Lenders require an appraisal to confirm the property is worth at least the loan amount.
Closing Disclosure (CD)
A standardized document provided at least three business days before closing that itemizes all loan terms, monthly payments, and closing costs. Review it carefully and compare it to your Loan Estimate.
Conforming Loan
A mortgage that meets the guidelines set by Fannie Mae and Freddie Mac, including loan limits set annually by the FHFA. Loans above these limits are called jumbo loans.
Debt-to-Income Ratio (DTI)
Your total monthly debt payments divided by your gross monthly income, expressed as a percentage. Lenders use DTI to evaluate your ability to manage a mortgage payment alongside your other obligations.
Earnest Money
A deposit made by the buyer when submitting an offer, held in escrow. It demonstrates serious intent and is typically applied toward the down payment or closing costs at closing.
Escrow
An account held by a neutral third party (or your lender) to hold funds for property taxes and homeowners insurance. Most lenders require an escrow account and collect a portion of these costs with each monthly payment.
FHA Loan
A mortgage insured by the Federal Housing Administration, designed for borrowers with lower down payments or less-than-perfect credit. Requires mortgage insurance premiums (MIP) for the life of the loan in most cases.
Fixed-Rate Mortgage
A mortgage with an interest rate that does not change over the life of the loan. Your principal and interest payment remains the same each month.
Loan Estimate (LE)
A standardized three-page document provided within three business days of application that outlines estimated loan terms, monthly payments, and closing costs. Use it to compare offers from multiple lenders.
Loan-to-Value Ratio (LTV)
The loan amount divided by the property's appraised value, expressed as a percentage. A lower LTV means more equity and generally better loan terms. An LTV above 80% typically triggers private mortgage insurance (PMI) on conventional loans.
NMLS
Nationwide Multistate Licensing System. A registry of licensed mortgage professionals. You can verify a loan officer's license and sponsorship at nmlsconsumeraccess.org.
PMI (Private Mortgage Insurance)
Insurance required on conventional loans when the down payment is less than 20%. It protects the lender, not the borrower. PMI can typically be removed once you reach 20% equity.
Points
Prepaid interest paid at closing to reduce the interest rate. One point equals 1% of the loan amount. Paying points makes sense if you plan to stay in the home long enough to recoup the upfront cost through lower monthly payments.
Pre-Approval
A conditional commitment from a lender based on a credit check and review of your income and asset documentation. Stronger than pre-qualification and carries more weight with sellers.
Rate Lock
An agreement between you and the lender that guarantees a specific interest rate for a defined period, typically 30–60 days. Protects you from rate increases while your loan is being processed.
Title Insurance
Insurance that protects against claims on the property's ownership history. Lenders require a lender's title policy; an owner's title policy protects your own interest and is typically optional but recommended.
Underwriting
The process by which a lender evaluates your loan application — reviewing your credit, income, assets, and the property — to make a final lending decision.
VA Loan
A mortgage guaranteed by the U.S. Department of Veterans Affairs, available to eligible veterans, active-duty service members, and qualifying surviving spouses. Offers 0% down and no private mortgage insurance.
Have a term you do not see here? Ask directly.
Contact CourtneyThis glossary is for educational purposes only. Courtney Wright | NMLS# 1059199 | Innovative Mortgage Services, Inc. | NMLS# 250769 | Equal Housing Lender.