Glossary
Mortgage Glossary
Mortgage words, defined like a human would say them. Search for a term or browse the list.
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A
Amortization
Amortization is how your loan gets paid off over time through regular payments. Early on, more of each payment goes to interest and less to principal. As the years pass, that flips, and more goes toward the balance. By the end of the term, the loan is fully paid off.
APR
APR, or annual percentage rate, is the yearly cost of your loan including certain fees, not just the interest rate. Because it folds in some closing costs, the APR is usually a bit higher than your rate. It's meant to help you compare loan offers on a more apples-to-apples basis.
C
Closing Costs
Closing costs are the fees you pay to finalize your home purchase, on top of your down payment. They include lender fees, title and escrow charges, an appraisal, and prepaid items like taxes and insurance. Closing costs commonly run roughly 2% to 5% of the purchase price, though it varies by location and loan.
Conforming Loan
A conforming loan is a conventional loan that meets the guidelines and loan limits set by Fannie Mae and Freddie Mac. Staying within the conforming limit often means more competitive terms. Loans above that limit are called jumbo loans and follow different rules, since they can't be sold to those agencies.
Conventional Loan
A conventional loan is a mortgage that isn't backed by a government program like FHA or VA. It often needs solid credit, but it can allow down payments as low as 3% and lets you drop mortgage insurance once you build enough equity. It's the most common loan type for many buyers.
D
Discount Points
Discount points are an up-front fee you can pay to permanently lower your interest rate. One point usually costs 1% of your loan amount. Points may be worth it if you keep the loan long enough for the monthly savings to outweigh the cost, but not if you'll move or refinance soon.
DTI (Debt-to-Income Ratio)
DTI, or debt-to-income ratio, compares your monthly debt payments to your gross monthly income, shown as a percentage. Lenders use it to judge how much new payment you can handle. There are two versions: front-end counts housing only, and back-end counts all your monthly debts plus the housing payment.
E
Earnest Money
Earnest money is a good-faith deposit you put down when your offer is accepted, showing the seller you're serious. It's usually held in escrow and applied toward your down payment or closing costs at closing. If the deal falls through for a reason your contract protects, you can often get it back.
Escrow
Escrow has two meanings in a home purchase. Before closing, it's a neutral account that holds your earnest money and documents. After closing, an escrow account is where your lender collects part of your payment each month to pay property taxes and insurance for you when they come due.
P
PMI (Private Mortgage Insurance)
PMI, or private mortgage insurance, is a fee that protects the lender, not you, when you put less than 20% down on a conventional loan. It's usually added to your monthly payment. Once you build enough equity, you can often request to have PMI removed, which lowers your payment.
Pre-Approval vs. Pre-Qualification
A pre-qualification is a quick estimate of what you may borrow, based on info you share. A pre-approval goes further: the lender verifies your credit, income, and assets, so it carries more weight with sellers. Think of pre-qualification as a starting point and pre-approval as the stronger, documented version.