Mortgage terms, explained simply.

A rough estimate of what you might be able to borrow, usually based on self-reported information. No documents are verified and credit may not be pulled. It gives you a starting range, but it is not a commitment from a lender.

Your income, assets, and credit have been reviewed by a lender. It is a conditional commitment, meaning the lender is willing to move forward as long as the property qualifies and your financial situation stays stable through closing. Most sellers expect this before accepting an offer.

Your total monthly debt payments divided by your gross monthly income. Lenders use it to determine whether you can handle the new mortgage payment alongside your existing obligations. The threshold varies by loan program, but lower generally gives you more flexibility.

An acronym for Principal, Interest, Taxes, and Insurance. It represents your total monthly housing payment, not just the loan portion. When a lender tells you what you qualify for, PITI is the number they are working from. It is the full picture of what you will owe each month.

A mortgage that is not backed by a government agency. It follows guidelines set by Fannie Mae or Freddie Mac. It is one of several loan types available, each with different requirements around down payment, credit, and mortgage insurance.

A loan insured by a government agency that allows lower down payments and more flexible credit requirements than conventional financing. The trade-off is mandatory mortgage insurance for the life of the loan in most cases, which means lower barrier to entry but higher long-term cost. Whether that trade-off makes sense depends on how long you plan to keep the loan and what other options are available to you.

A loan available to eligible veterans, active-duty service members, and certain surviving spouses. It eliminates the down payment requirement and does not carry monthly mortgage insurance. There is a funding fee that can be financed into the loan, though it may be reduced or waived entirely depending on the veteran's disability status and service history. It is one of the most favorable loan structures available to those who qualify.

A loan backed by the U.S. Department of Agriculture for properties in eligible rural and suburban areas. It requires no down payment and carries lower mortgage insurance costs than FHA. The trade-offs are geographic restrictions and household income limits. If the property and your income qualify, it offers a low-cost path to homeownership with minimal cash upfront.

Programs offered by state and local agencies, nonprofits, or lenders that help cover part or all of your down payment and closing costs. They are not always free money. Some are forgivable over time, some are repayable second liens, and some come with rate or fee adjustments. Eligibility typically depends on income, location, and whether you are a first-time buyer. Worth researching early, but read the full terms before assuming it reduces your cost.

A loan that exceeds the conforming loan limits set by Fannie Mae and Freddie Mac. Because it cannot be sold to those agencies, the lender holds more risk, which typically means stricter qualification requirements and sometimes a slightly higher rate. The limit varies by county and changes annually.

A loan that does not meet the qualified mortgage standards defined by federal regulation. This does not mean it is predatory or risky by nature. It means the borrower's situation does not fit neatly into the standard documentation or debt-ratio boxes. Self-employed borrowers, investors, and people with non-traditional income often use non-QM products because their financial picture is real but does not conform to agency guidelines.

The portion of the purchase price you pay upfront in cash. 20% avoids mortgage insurance on a conventional loan, but many programs allow significantly less. The right amount depends on your cash reserves, monthly payment comfort, and overall financial picture.

The schedule that determines how much of each payment goes to interest versus principal. Early in the loan, most of your payment covers interest. Over time, more goes to principal. This is why extra payments made early in the loan have a larger impact on the total interest paid over the life of the loan.

Insurance that protects the lender if you default. It is required when your equity is below a certain threshold, typically 20% on a conventional loan. It is a cost that makes lower-down-payment homeownership possible. On conventional loans, it can be removed once you reach sufficient equity.

The portion of your payment that actually reduces your loan balance. The rest of your monthly payment goes to interest, taxes, and insurance. Early in your loan, principal is the smallest piece. It grows over time as the interest portion shrinks according to the amortization schedule.

A unit of measurement used in finance where 100 basis points equals 1%. When someone says a rate moved 25 basis points, they mean it changed by 0.25%. The term exists because percentage changes of percentages get confusing quickly, so the industry uses basis points for precision.

A guarantee from your lender that a specific rate will be held for a set number of days, typically 30 to 60. If you do not close within that window, the lock expires and you may receive a different rate. It protects you from rates rising during the transaction, but it also means you do not benefit if rates fall during that period unless your lock includes a float-down provision.

Choosing not to lock your rate yet, which means your rate will move with the market until you decide to lock. Floating gives you the chance to benefit from rate improvements, but it also means your rate could increase. It is a timing decision, not a right or wrong one.

A provision in some rate locks that allows you to take advantage of a lower rate if the market improves after you lock. The specifics vary by lender: some offer it for free, some charge a fee, and most have rules about how much rates need to drop before you can exercise it. Ask your lender whether your lock includes this option and what the conditions are.

An upfront fee you pay at closing to buy a lower interest rate. One point equals 1% of your loan amount. Whether it makes sense depends on how long you keep the loan before selling or refinancing. The longer you stay, the more value you get from the lower rate.

Cash the lender provides at closing in exchange for you accepting a higher interest rate. It reduces your upfront costs but increases your monthly payment. It is the opposite of discount points, and it can be a useful tool when you want to minimize cash to close or when you expect to refinance relatively soon.

The rate at which neither you nor the lender pays an upfront premium. No discount points, no lender credits. It is a neutral starting point on a menu of rate options. You can go lower by paying points or go higher to receive credits toward closing costs.

A fee the lender charges for processing and underwriting your loan. It covers the administrative work of evaluating your application, verifying your documents, and preparing the loan for closing. Some lenders charge a flat fee, others charge a percentage of the loan amount, and some build it into the rate instead of itemizing it separately.

When you pay your loan officer's compensation directly as a line item on your closing disclosure, rather than having it built into the rate. This can sometimes result in a slightly lower rate because the lender is not embedding that cost into the pricing. Whether it saves you money depends on the specific numbers and how long you keep the loan.

A government-required calculation that rolls certain loan fees into the rate to help you compare offers from different lenders. It is useful as a directional tool, but it assumes you keep the loan for the full term, which most people do not. It also does not include every cost associated with the loan.

A standardized disclosure that shows your projected costs, rate, and monthly payment. You receive it within three business days of applying. It is an estimate, not a final guarantee. Some figures can change between the estimate and closing, though certain fees are protected and cannot increase beyond set tolerances.

Your loan amount divided by the property value, expressed as a percentage. If you put 20% down, your LTV is 80%. It affects your rate, whether you need mortgage insurance, and how much flexibility you have in structuring the loan. Lower LTV generally means better terms.

A condominium that does not meet the guidelines required for conventional or government-backed financing. Common reasons include a high percentage of investor-owned units, pending litigation against the HOA, or a single entity owning too many units in the project. It does not mean the property is a bad investment. It means fewer lenders will finance it, and those that do may require different loan structures or pricing.

A licensed appraiser provides an opinion of value for the lender. The lender needs to confirm the property is adequate collateral for the loan. It is not a home inspection, and it is not a guarantee of market value. It is one professional's assessment based on comparable sales and property condition.

The difference between what you offered and what the appraiser says the home is worth. If you offered more than the appraised value, you may need to cover the difference in cash, renegotiate the price, or use a combination of both. It is common in competitive markets.

Funds the seller contributes toward your closing costs as part of the negotiation. The purchase price typically stays higher to accommodate the concession, meaning you finance part of it through your loan. It is a structuring tool that reduces your cash needed at closing, and the maximum amount depends on your loan program and loan-to-value ratio.

A lump sum, usually from the seller or builder, is deposited into an account that subsidizes your payment for one to three years. After the buydown period ends, you pay the full note rate. The cost of the subsidy is built into the transaction, either through the purchase price or as part of the negotiation.

The process where a trained professional reviews your entire file to confirm you meet the loan program guidelines. They verify income, assets, credit, and property details against what was stated in your application. It is methodical and rule-based, not subjective.

Items the underwriter needs before issuing final approval. Common examples include a letter explaining a large deposit, updated pay stubs, or proof of homeowner's insurance. They are a normal part of the process and do not indicate a problem with your application.

The underwriter has signed off and your loan is fully approved. You are cleared to schedule the closing appointment. It is the final green light, though you still need to sign documents and wire funds.

A deposit you submit with your offer to show the seller you are serious. It is held in escrow (not given directly to the seller) and typically applied toward your down payment or closing costs at the end. If you back out for a reason not covered by your contract contingencies, you may forfeit it. The amount varies by market but is often 1% to 3% of the purchase price.

A collection of charges from multiple parties: the lender, title company, government recording offices, and insurance providers. They are disclosed on your loan estimate early in the process and finalized on your closing disclosure. The total typically ranges from 2% to 5% of the loan amount depending on location and loan structure.

A reserve account the lender sets up to pay your property taxes and homeowner's insurance on your behalf. At closing, you fund a few months in advance so the account has a cushion for upcoming bills. The money is still allocated to you. It sits in the account until those bills come due.

A one-time policy that protects you and the lender if someone later claims ownership of the property due to a lien, fraud, or recording error from before you purchased it. Unlike other insurance that covers future events, title insurance covers issues from the past that were not discovered during the title search.

Costs you pay at closing that cover expenses accruing between your closing date and when your first regular payment cycle begins. This includes per-diem interest for the remainder of the closing month and sometimes the first year of homeowner's insurance. These are costs you would pay regardless. The timing just shifts them to closing day.

The final version of your loan terms and costs, which you receive at least three business days before closing. It replaces the loan estimate and reflects the actual numbers you will sign for. Comparing it to your original loan estimate is how you confirm nothing changed unexpectedly.

A three-business-day window after closing during which you can cancel a refinance without penalty. It applies only to refinances on a primary residence, not to purchase transactions. If you change your mind within those three days, the lender must return any fees you paid and release the lien. The loan does not fund until this period expires.

Your property taxes or insurance increased, and the escrow account does not have enough to cover the next payment cycle. Your lender adjusts your monthly payment to make up the difference. Your interest rate and loan terms have not changed. The underlying bills simply cost more than what was originally estimated.

Replacing your current loan with a new one, typically to get a lower rate, change the loan term, or access equity. It is not free. There are closing costs on the new loan, and the math only works if you stay long enough to recoup those costs through the monthly savings or other benefit the new loan provides.

A re-amortization of your existing loan after you make a large lump-sum payment toward principal. Your rate and term stay the same, but your monthly payment decreases because the remaining balance is now lower. Unlike refinancing, there are no closing costs and no new loan. Most lenders charge a small administrative fee, typically a few hundred dollars.

The company that collects your payment, manages your escrow account, and handles your account day to day. They may or may not be the same company that originated your loan. Your loan can be transferred between servicers, and your terms do not change when this happens.

A clause in the agreement between your lender and the investor who purchased your loan. If you refinance or pay off the loan within a certain period after closing (often 6 to 12 months), the original lender may owe a penalty to the investor. This does not directly cost you anything, but it is why some lenders discourage very early refinances.

A refinance where you change your interest rate, your loan term, or both, without taking cash out. Your new loan amount is essentially what you still owe plus the closing costs if you choose to roll them in. It is the most straightforward type of refinance.

A refinance where your new loan is larger than what you currently owe, and you receive the difference in cash. You are borrowing against your home equity. The rate is typically slightly higher than a rate-and-term refinance because the lender is taking on more risk.