A

Adjustable-rate mortgage (ARM)

A mortgage where the rate is fixed for an initial period (5, 7, or 10 years) and then adjusts periodically based on a market index. Lower starting rate but takes on rate risk.

Amortization

How a loan is paid off over time — a calculation that gives you the same monthly payment but with the split between principal and interest gradually shifting toward principal.

APR (Annual Percentage Rate)

The interest rate plus most closing costs spread over the life of the loan, expressed as an annual percentage. Used to compare loans with different fee structures apples-to-apples.

Appraisal

A licensed professional’s estimate of a home’s fair market value. Required by the lender; the lender will only loan a percentage of the appraised value or purchase price, whichever is lower.

B

Back-end DTI

Total monthly debt payments (housing + other debts) divided by gross monthly income. The headline DTI number lenders quote.

C

Cash-to-close

The total cash you bring to closing: down payment + closing costs + prepaids − earnest money already paid − seller credits.

Closing Disclosure (CD)

A 5-page federally-mandated form that lays out the final terms and costs of your loan. Sent at least 3 business days before closing.

Conforming loan

A mortgage that meets Fannie Mae or Freddie Mac’s underwriting and size limits ($806,500 in most U.S. counties for 2026).

Conventional loan

A mortgage that conforms to Fannie Mae or Freddie Mac standards. Not government-insured.

D

Debt-to-income ratio (DTI)

The percentage of your monthly gross income that goes to debt payments. Lenders calculate two: front-end (just housing) and back-end (all debt).

Down payment

The portion of the purchase price you pay out of pocket. The rest is the loan.

E

Earnest money

A deposit (typically 1–3% of the price) you put up when you sign a purchase contract, held in escrow as a good-faith commitment. Goes toward your down payment at closing.

Equity

The portion of the home you actually own. Equity = home value − loan balance.

Escrow account

An account the lender holds on your behalf to pay property taxes and homeowners insurance. Each month, a piece of your mortgage payment funds the account.

F

FHA loan

A mortgage insured by the Federal Housing Administration. More forgiving credit and DTI than Conventional, but with longer-lasting mortgage insurance.

FICO score

The credit score model used by mortgage lenders. The mortgage industry uses older FICO 2/4/5 models (Experian/TransUnion/Equifax), which can differ from the score in consumer apps.

Fixed-rate mortgage

A mortgage where the interest rate stays the same for the entire loan term. Most common variety in America.

Front-end DTI

Just the proposed monthly housing payment divided by gross monthly income.

Funding fee (VA)

A one-time fee charged on VA loans (typically 2.15% of loan amount for first-time use with no down payment). Replaces monthly mortgage insurance.

G

Gift letter

A signed letter from a family member stating that money they’ve gifted toward your down payment isn’t a loan and doesn’t need to be repaid. Required when down-payment funds come from a gift.

H

Hard inquiry / hard pull

A credit check where the lender looks at your full credit history. Dings your score 2–5 points. Multiple mortgage hard pulls within a 14–45 day window are bundled by FICO into a single inquiry.

HELOC (Home equity line of credit)

A revolving line of credit secured by your home equity. Variable rate. You draw and repay as needed during the draw period.

Homeowners insurance

Insurance that protects the home against fire, theft, weather damage, and liability claims. Required by lenders.

I

Interest rate

The percentage charged on your loan balance each year, paid as part of every monthly mortgage payment.

J

Jumbo loan

A mortgage that exceeds the conforming loan limit. Stricter credit and reserve requirements.

L

Loan Estimate (LE)

A 3-page federally-mandated form lenders send within 3 business days of your application. Lays out the terms, payment, and closing costs of the loan.

Loan-to-value (LTV)

The loan amount divided by the home’s value. 95% LTV means a 5% down payment.

LLPA (Loan-Level Price Adjustment)

A pricing adjustment that affects your rate or fees based on credit score, LTV, loan purpose, property type, and other risk factors. Used on Conventional loans.

M

MIP (Mortgage Insurance Premium)

FHA’s mortgage insurance. Has both an upfront component (1.75% of loan, rolled in) and an annual component (0.55%, paid monthly). Stays for the life of the loan if down payment is < 10%.

N

NMLS

Nationwide Mortgage Licensing System. Every loan officer in the U.S. has an NMLS number you can look up. Verify your LO’s license at NMLS Consumer Access.

O

Origination fee

The lender’s fee for processing the loan. Negotiable. The biggest piece of "Section A" on your Loan Estimate.

P

PITI

Principal, Interest, Taxes, Insurance — the four parts of a fully-bundled monthly mortgage payment.

PMI (Private Mortgage Insurance)

Mortgage insurance on Conventional loans. Required when LTV > 80%. Cancels automatically at 78% LTV.

Points (discount points)

A fee paid at closing to lower your interest rate. Each point costs 1% of the loan and reduces the rate by roughly 0.25%. Worth it only if you’ll keep the loan past the break-even.

Pre-approval

A letter from a loan officer, based on a real credit pull and document review, stating how much you can borrow. Required by sellers when making an offer.

Prepayment penalty

A fee for paying off the loan early. Almost extinct on owner-occupied U.S. mortgages today — the CFPB largely banned them on Qualified Mortgages.

Principal

The amount you actually owe on the loan. Each monthly payment chips away at the principal balance.

R

Rate lock

An agreement that locks your interest rate for a set period (typically 30–60 days) while the loan is being processed. Protects you from rate increases between application and closing.

Rapid rescore

A lender-initiated process to update your credit score within days (instead of waiting for the next monthly reporting cycle) after you pay down a card or correct an error.

Refinance

Replacing your current mortgage with a new one — to lower the rate, change the term, or take cash out from equity.

Reserves

Money you have left after closing, measured in months of PITI. Lenders typically want 2 months of reserves; jumbo lenders want 6–12.

RESPA

Real Estate Settlement Procedures Act. Federal law that governs settlement service disclosures, escrow, and certain prohibited practices in mortgage lending.

S

Seller concessions

Money the seller agrees to credit toward your closing costs. Limits vary by loan type (typically 3–9% of the price).

Streamline refinance

A simplified refinance available on FHA, VA, and USDA loans. No appraisal in many cases, minimal paperwork, faster closing.

T

Title insurance

Insurance that protects against undiscovered defects in the home’s title (boundary disputes, undisclosed liens, fraud). Lender’s policy is required; owner’s policy is optional but recommended.

TRID

TILA-RESPA Integrated Disclosure rule. The federal regulation that requires the Loan Estimate within 3 days of application and the Closing Disclosure 3 days before closing.

U

Underwriting

The process where the lender re-verifies all your financial information and decides whether to approve the loan. Happens after the appraisal and before closing.

USDA loan

A zero-down loan program for moderate-income buyers in eligible rural and suburban areas.

V

VA loan

A zero-down loan guaranteed by the Department of Veterans Affairs for eligible veterans, active duty service members, and surviving spouses.

VantageScore

A credit score model used by some banks and the version typically shown in consumer credit apps like Credit Karma. NOT the model used by mortgage lenders.

Primary sources

CFPB Mortgage Glossary— Consumer Financial Protection Bureau (CFPB)
NMLS Consumer Access— Nationwide Mortgage Licensing System
HUD Glossary of Common Mortgage Terms— U.S. Department of Housing and Urban Development (HUD)

These are the official, authoritative sources we cite throughout the Learning Center. Mortgage rules change — always confirm specifics with a licensed loan officer or directly with the agency before making a decision.

A

Adjustable-rate mortgage (ARM)

A mortgage where the rate is fixed for an initial period (5, 7, or 10 years) and then adjusts periodically based on a market index. Lower starting rate but takes on rate risk.

Amortization

How a loan is paid off over time — a calculation that gives you the same monthly payment but with the split between principal and interest gradually shifting toward principal.

APR (Annual Percentage Rate)

The interest rate plus most closing costs spread over the life of the loan, expressed as an annual percentage. Used to compare loans with different fee structures apples-to-apples.

Appraisal

A licensed professional’s estimate of a home’s fair market value. Required by the lender; the lender will only loan a percentage of the appraised value or purchase price, whichever is lower.

B

Back-end DTI

Total monthly debt payments (housing + other debts) divided by gross monthly income. The headline DTI number lenders quote.

C

Cash-to-close

The total cash you bring to closing: down payment + closing costs + prepaids − earnest money already paid − seller credits.

Closing Disclosure (CD)

A 5-page federally-mandated form that lays out the final terms and costs of your loan. Sent at least 3 business days before closing.

Conforming loan

A mortgage that meets Fannie Mae or Freddie Mac’s underwriting and size limits ($806,500 in most U.S. counties for 2026).

Conventional loan

A mortgage that conforms to Fannie Mae or Freddie Mac standards. Not government-insured.

D

Debt-to-income ratio (DTI)

The percentage of your monthly gross income that goes to debt payments. Lenders calculate two: front-end (just housing) and back-end (all debt).

Down payment

The portion of the purchase price you pay out of pocket. The rest is the loan.

E

Earnest money

A deposit (typically 1–3% of the price) you put up when you sign a purchase contract, held in escrow as a good-faith commitment. Goes toward your down payment at closing.

Equity

The portion of the home you actually own. Equity = home value − loan balance.

Escrow account

An account the lender holds on your behalf to pay property taxes and homeowners insurance. Each month, a piece of your mortgage payment funds the account.

F

FHA loan

A mortgage insured by the Federal Housing Administration. More forgiving credit and DTI than Conventional, but with longer-lasting mortgage insurance.

FICO score

The credit score model used by mortgage lenders. The mortgage industry uses older FICO 2/4/5 models (Experian/TransUnion/Equifax), which can differ from the score in consumer apps.

Fixed-rate mortgage

A mortgage where the interest rate stays the same for the entire loan term. Most common variety in America.

Front-end DTI

Just the proposed monthly housing payment divided by gross monthly income.

Funding fee (VA)

A one-time fee charged on VA loans (typically 2.15% of loan amount for first-time use with no down payment). Replaces monthly mortgage insurance.

G

Gift letter

A signed letter from a family member stating that money they’ve gifted toward your down payment isn’t a loan and doesn’t need to be repaid. Required when down-payment funds come from a gift.

H

Hard inquiry / hard pull

A credit check where the lender looks at your full credit history. Dings your score 2–5 points. Multiple mortgage hard pulls within a 14–45 day window are bundled by FICO into a single inquiry.

HELOC (Home equity line of credit)

A revolving line of credit secured by your home equity. Variable rate. You draw and repay as needed during the draw period.

Homeowners insurance

Insurance that protects the home against fire, theft, weather damage, and liability claims. Required by lenders.

I

Interest rate

The percentage charged on your loan balance each year, paid as part of every monthly mortgage payment.

J

Jumbo loan

A mortgage that exceeds the conforming loan limit. Stricter credit and reserve requirements.

L

Loan Estimate (LE)

A 3-page federally-mandated form lenders send within 3 business days of your application. Lays out the terms, payment, and closing costs of the loan.

Loan-to-value (LTV)

The loan amount divided by the home’s value. 95% LTV means a 5% down payment.

LLPA (Loan-Level Price Adjustment)

A pricing adjustment that affects your rate or fees based on credit score, LTV, loan purpose, property type, and other risk factors. Used on Conventional loans.

M

MIP (Mortgage Insurance Premium)

FHA’s mortgage insurance. Has both an upfront component (1.75% of loan, rolled in) and an annual component (0.55%, paid monthly). Stays for the life of the loan if down payment is < 10%.

N

NMLS

Nationwide Mortgage Licensing System. Every loan officer in the U.S. has an NMLS number you can look up. Verify your LO’s license at NMLS Consumer Access.

O

Origination fee

The lender’s fee for processing the loan. Negotiable. The biggest piece of "Section A" on your Loan Estimate.

P

PITI

Principal, Interest, Taxes, Insurance — the four parts of a fully-bundled monthly mortgage payment.

PMI (Private Mortgage Insurance)

Mortgage insurance on Conventional loans. Required when LTV > 80%. Cancels automatically at 78% LTV.

Points (discount points)

A fee paid at closing to lower your interest rate. Each point costs 1% of the loan and reduces the rate by roughly 0.25%. Worth it only if you’ll keep the loan past the break-even.

Pre-approval

A letter from a loan officer, based on a real credit pull and document review, stating how much you can borrow. Required by sellers when making an offer.

Prepayment penalty

A fee for paying off the loan early. Almost extinct on owner-occupied U.S. mortgages today — the CFPB largely banned them on Qualified Mortgages.

Principal

The amount you actually owe on the loan. Each monthly payment chips away at the principal balance.

R

Rate lock

An agreement that locks your interest rate for a set period (typically 30–60 days) while the loan is being processed. Protects you from rate increases between application and closing.

Rapid rescore

A lender-initiated process to update your credit score within days (instead of waiting for the next monthly reporting cycle) after you pay down a card or correct an error.

Refinance

Replacing your current mortgage with a new one — to lower the rate, change the term, or take cash out from equity.

Reserves

Money you have left after closing, measured in months of PITI. Lenders typically want 2 months of reserves; jumbo lenders want 6–12.

RESPA

Real Estate Settlement Procedures Act. Federal law that governs settlement service disclosures, escrow, and certain prohibited practices in mortgage lending.

S

Seller concessions

Money the seller agrees to credit toward your closing costs. Limits vary by loan type (typically 3–9% of the price).

Streamline refinance

A simplified refinance available on FHA, VA, and USDA loans. No appraisal in many cases, minimal paperwork, faster closing.

T

Title insurance

Insurance that protects against undiscovered defects in the home’s title (boundary disputes, undisclosed liens, fraud). Lender’s policy is required; owner’s policy is optional but recommended.

TRID

TILA-RESPA Integrated Disclosure rule. The federal regulation that requires the Loan Estimate within 3 days of application and the Closing Disclosure 3 days before closing.

U

Underwriting

The process where the lender re-verifies all your financial information and decides whether to approve the loan. Happens after the appraisal and before closing.

USDA loan

A zero-down loan program for moderate-income buyers in eligible rural and suburban areas.

V

VA loan

A zero-down loan guaranteed by the Department of Veterans Affairs for eligible veterans, active duty service members, and surviving spouses.

VantageScore

A credit score model used by some banks and the version typically shown in consumer credit apps like Credit Karma. NOT the model used by mortgage lenders.

Primary sources

CFPB Mortgage Glossary— Consumer Financial Protection Bureau (CFPB)
NMLS Consumer Access— Nationwide Mortgage Licensing System
HUD Glossary of Common Mortgage Terms— U.S. Department of Housing and Urban Development (HUD)

Mortgage glossary: every term, plain English

A

Adjustable-rate mortgage (ARM)

Amortization

APR (Annual Percentage Rate)

Appraisal

B

Back-end DTI

C

Cash-to-close

Closing Disclosure (CD)

Conforming loan

Conventional loan

D

Debt-to-income ratio (DTI)

Down payment

E

Earnest money

Equity

Escrow account

F

FHA loan

FICO score

Fixed-rate mortgage

Front-end DTI

Funding fee (VA)

G

Gift letter

H

Hard inquiry / hard pull

HELOC (Home equity line of credit)

Homeowners insurance

I

Interest rate

J

Jumbo loan

L

Loan Estimate (LE)

Loan-to-value (LTV)

LLPA (Loan-Level Price Adjustment)

M

MIP (Mortgage Insurance Premium)

N

NMLS

O

Origination fee

P

PITI

PMI (Private Mortgage Insurance)

Points (discount points)

Pre-approval

Prepayment penalty

Principal

R

Rate lock

Rapid rescore

Refinance

Reserves

RESPA

S

Seller concessions

Streamline refinance

T

Title insurance

TRID

U

Underwriting

USDA loan

V

VA loan

VantageScore

Primary sources

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Working with a real estate agent: what they do, what they cost

House hunting: tours, open houses, and what to actually look for

Mortgage glossary: every term, plain English

A

Adjustable-rate mortgage (ARM)