Mortgage Lending Glossary

This glossary breaks down the mortgage process in simple terms, making it easier for buyers to navigate the lending journey.

Conventional Loan – A mortgage not backed by the government, typically requiring a higher credit score and down payment.
FHA Loan – A government-backed loan by the Federal Housing Administration, designed for lower credit scores and smaller down payments.
VA Loan – A mortgage for eligible veterans and active-duty military, backed by the Department of Veterans Affairs, with no down payment required.
USDA Loan – A government-backed loan for rural homebuyers offering 100% financing (no down payment required).
Jumbo Loan – A mortgage exceeding the loan limits set by Fannie Mae and Freddie Mac, usually requiring a larger down payment and higher credit score.
Adjustable-Rate Mortgage (ARM) – A loan with an interest rate that can change periodically, often starting lower but adjusting over time.
Fixed-Rate Mortgage – A loan where the interest rate remains the same throughout the entire term of the loan.
Interest-Only Loan – A mortgage where the borrower pays only interest for a set period before beginning to pay down the principal.

Down Payment – The upfront amount a buyer pays toward the home’s purchase price, usually a percentage of the total cost.
Closing Costs – Fees and expenses (outside the home price) that buyers and sellers pay at closing, including lender fees, title fees, and taxes.
Origination Fee – A lender’s fee for processing a mortgage loan, usually a percentage of the loan amount.
Discount Points – Optional fees paid at closing to lower the interest rate on a loan (also called "buying down the rate").
Private Mortgage Insurance (PMI) – A fee required for conventional loans when putting less than 20% down, protecting the lender in case of default.
Funding Fee – A one-time fee for VA loans, usually rolled into the loan amount, that helps sustain the VA loan program.
Escrow Account – A separate account managed by the lender to pay property taxes and homeowners insurance on the borrower’s behalf.
Earnest Money Deposit (EMD) – A deposit paid by the buyer to show serious intent to purchase, held in escrow until closing.
Prepaid Costs – Upfront payments for property taxes, homeowners insurance, and interest, required at closing.
Title Insurance – Protection against legal issues with property ownership, ensuring the home has a clear title.

Annual Percentage Rate (APR) – A broader measure of loan costs, including the interest rate and other fees, shown as a percentage.
Principal – The original loan amount borrowed before interest is added.
Interest – The cost of borrowing money, expressed as a percentage of the loan amount.
PITI – Stands for Principal, Interest, Taxes, and Insurance, the four components of a typical monthly mortgage payment.
Loan Term – The length of time you have to repay the mortgage, commonly 15 or 30 years.
Escrows (Impounds) – Monthly deposits made with a mortgage payment to cover property taxes and homeowners insurance, held by the lender.
Rate Lock – A guarantee from the lender that your interest rate will not change for a specified period before closing, even if market rates fluctuate.

Pre-Approval – A lender’s written estimate of how much you can borrow, based on a full financial review, making you a stronger buyer.
Pre-Qualification – A basic estimate of what you may be able to borrow, based on self-reported financial details (less formal than pre-approval).
Debt-to-Income Ratio (DTI) – A percentage comparing your monthly debt payments to your gross monthly income, used to determine loan eligibility.
Loan-to-Value Ratio (LTV) – A percentage comparing the loan amount to the home’s appraised value, influencing mortgage approval and PMI requirements.
Underwriting – The process where a lender reviews your financials to approve or deny a loan.
Credit Score – A number (typically between 300-850) that represents your creditworthiness, influencing loan approval and interest rates.
Conditional Approval – When an underwriter approves the loan but requires additional documents or information before final approval.
Final Loan Approval (Clear to Close) – The lender’s official confirmation that all requirements have been met, and the loan is ready for closing.

Loan Estimate (LE) – A document provided by the lender within three days of applying for a mortgage, detailing estimated loan costs and terms.
Closing Disclosure (CD) – A final breakdown of loan terms, payments, and closing costs, provided at least three days before closing.
Good Faith Estimate (GFE) – A previous version of the Loan Estimate, still used in certain loan types.
Verification of Employment (VOE) – A lender’s confirmation of a borrower’s employment status and income.
Debt Verification – A lender’s review of outstanding debts, including car loans, student loans, and credit cards, to assess financial standing.
Gift Letter – A document confirming that money received from family or friends for a down payment is a gift, not a loan.

Appraisal – A professional evaluation of a home’s market value, required by lenders to ensure the property is worth the loan amount.
Home Inspection – A detailed assessment of the home’s condition by a professional to identify potential issues before purchase (not required for a loan but highly recommended).
Survey – A property boundary report that may be required to confirm the lot size and boundaries.
Deed – A legal document proving ownership of the home.
Title Search – A process to verify that the home has a clear ownership history and no outstanding legal claims.

Amortization – The process of paying off a loan over time with regular payments that include both principal and interest.
Refinancing – Replacing an existing mortgage with a new loan, typically to lower the interest rate or monthly payments.
Cash-Out Refinance – A refinance option where you take out a new loan for more than what you owe and receive the difference in cash.
Loan Modification – A change in loan terms (such as lower interest or extended repayment) to help borrowers struggling to make payments.
Balloon Payment – A large one-time payment due at the end of a loan term, common in certain types of mortgages.
Forbearance – A temporary pause or reduction in mortgage payments for borrowers facing financial hardship.
Foreclosure – The legal process where a lender takes possession of a property due to non-payment of the mortgage.

Settlement Statement (ALTA Statement) – A detailed summary of all costs paid at closing, provided by the title company.
Escrow Closing – A process where a neutral third party manages the final steps of the home purchase, ensuring funds and documents are properly exchanged.
Funding – The transfer of money from the lender to the title company to complete the home purchase.
Recording – The official filing of the deed and mortgage documents with the county, finalizing the transaction.
Possession Date – The date when the buyer officially gets the keys and can move into the home.

LET THE JOURNEY BEGIN! :-)