Mortgage Glossary
Plain-English definitions of 40 essential mortgage and home-buying terms—from APR to VA IRRRL.
A
APR (Annual Percentage Rate)
The total cost of a mortgage expressed as a yearly percentage, including the interest rate plus most lender fees.
ARM (Adjustable-Rate Mortgage)
A mortgage with an interest rate that adjusts periodically based on a benchmark index. Common types include 5/1, 7/1, and 10/1 ARMs.
Asset Depletion
A Non-QM mortgage program that qualifies borrowers based on liquid assets divided by 84-360 months as a monthly income equivalent.
B
Bank Statement Loan
A Non-QM mortgage for self-employed borrowers using 12-24 months of bank statements (instead of tax returns) to calculate qualifying income.
C
Cash-Out Refinance
A refinance that replaces an existing mortgage with a larger one, with the borrower receiving the difference as cash. Typically capped at 80% LTV on primary residences.
Clear to Close (CTC)
The lender’s final approval indicating all underwriting conditions have been satisfied. Closing scheduled once a loan is CTC.
Closing Costs
Fees paid at closing, typically 2-5% of the loan amount, including lender fees, third-party fees, prepaid items, and recording fees.
Closing Disclosure (CD)
A 5-page federal form lenders must provide at least 3 business days before closing, showing final loan terms and exact closing costs.
Conforming Loan
A mortgage that meets Fannie Mae/Freddie Mac guidelines and limits ($806,500 in most areas as of 2026).
Conventional Loan
A mortgage not insured or guaranteed by the federal government. Typically requires 5-20% down and 620+ credit. PMI required if down payment is less than 20%.
D
DSCR (Debt-Service Coverage Ratio)
An investor mortgage qualifying ratio comparing rental income to mortgage payment (PITIA). Most lenders require 1.0+; above 1.25 unlocks better pricing.
DTI (Debt-to-Income Ratio)
The percentage of gross monthly income used to pay monthly debts including the proposed mortgage. Most loan programs cap back-end DTI at 43-50%.
E
Earnest Money
A deposit (typically 1-3% of purchase price) made by the buyer with an offer to demonstrate good faith.
Escrow
A neutral third-party account that holds funds during a real estate transaction (earnest money before closing) and during the loan term (taxes and insurance).
F
FHA 203(k)
A renovation loan combining home purchase and rehabilitation costs into one FHA mortgage with 3.5% down.
FHA Loan
A government-backed mortgage insured by the Federal Housing Administration. Allows credit scores as low as 580 with 3.5% down.
Fix and Flip Loan
Short-term (typically 12-24 month) financing for investors who buy, renovate, and resell properties, usually based on After Repair Value (ARV).
Foreign National Loan
A mortgage program for non-US-resident buyers without US credit history. Typically requires 25-35% down and proof of foreign income.
H
HELOC (Home Equity Line of Credit)
A revolving line of credit secured by home equity. Borrowers can draw funds during the draw period (typically 10 years).
Hometown Heroes
Florida down payment assistance program for essential workers providing up to $35,000 in DPA as a 0% deferred second mortgage.
I
ITIN Loan
A mortgage for borrowers who pay US taxes using an Individual Taxpayer Identification Number instead of an SSN. Available in Florida, Texas, Colorado with 15-25% down.
J
Jumbo Loan
A mortgage exceeding conforming loan limits ($806,500 in most areas as of 2026). Typically requires 700+ credit and 10-20% down.
L
Loan Estimate (LE)
A 3-page federal form lenders must provide within 3 business days of application, outlining estimated loan terms and closing costs.
Loan-to-Value Ratio (LTV)
The ratio of loan amount to property’s appraised value. A $400,000 loan on a $500,000 home is 80% LTV.
M
MIP (Mortgage Insurance Premium)
FHA’s version of mortgage insurance, paid for the life of the loan in most cases. Removable only by refinancing into a Conventional loan.
N
Non-QM (Non-Qualified Mortgage)
Mortgages that don’t fit federal Qualified Mortgage rules. Include Bank Statement, DSCR, ITIN, Foreign National, Asset Depletion, and P&L programs.
Non-Warrantable Condo
A condominium that doesn’t meet Fannie Mae/Freddie Mac requirements. Requires portfolio or Non-QM financing.
P
PITIA
A monthly mortgage payment composed of Principal, Interest, Taxes, Insurance, and Association dues (HOA). Used in DTI and DSCR calculations.
PMI (Private Mortgage Insurance)
Insurance required on Conventional loans when down payment is less than 20%. Removable when borrower reaches 20% equity.
Pre-Approval
A lender’s written commitment to lend a specific amount based on verified income, assets, and credit. Required for serious house hunting.
Pre-Qualification
An informal estimate of how much a borrower can afford based on self-reported information. Less rigorous than pre-approval.
R
Rate Lock
A lender’s commitment to honor a specific interest rate for a defined period (typically 30-60 days), protecting borrowers from rate increases.
Rate-and-Term Refinance
A refinance that changes the interest rate, loan term, or both, but doesn’t significantly increase the loan balance.
Reserves
Cash assets a borrower must have available after closing, typically expressed in months of mortgage payments.
T
Title Insurance
Insurance protecting buyers and lenders from losses due to title defects. Both Owner’s and Lender’s policies are typical.
TRID
TILA-RESPA Integrated Disclosure rule. Federal regulation requiring lenders to provide Loan Estimate within 3 days of application and CD 3 days before closing.
U
URLA / Form 1003
Uniform Residential Loan Application – the standardized US mortgage application form.
USDA Loan
A government-backed mortgage for rural and some suburban properties offering 0% down financing. Income limits and geographic restrictions apply.
V
VA IRRRL
VA Interest Rate Reduction Refinance Loan (also called VA Streamline). Simplified refinance for existing VA loan holders.
VA Loan
A mortgage guaranteed by the Department of Veterans Affairs for eligible veterans, active-duty military, and surviving spouses. Offers 0% down and no PMI.
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