Mortgage glossary, in plain English

A

Adjustable-rate mortgage (ARM)

A mortgage whose interest rate is fixed for an initial period and then can adjust periodically based on an index plus a margin.

Amortization

Paying a loan down over time with regular payments that cover interest and principal; early payments are mostly interest.

Annual percentage rate (APR)

The yearly cost of a loan including interest and certain fees, expressed as a rate. Shown on page 3 of the Loan Estimate.

Appraisal

An independent estimate of a home's market value, ordered by the lender. FHA and VA appraisals also check minimum property standards.

B

Bank statement loan

A non-QM mortgage that calculates a self-employed borrower's income from bank deposits instead of tax returns.

C

Cash to close

The total you bring to closing: closing costs plus down payment, minus deposits, seller credits, and other adjustments.

Certificate of Eligibility (COE)

The VA document that confirms eligibility for a VA loan and shows funding fee status and available entitlement.

Closing Disclosure

The five-page form you receive at least three business days before closing showing your final loan terms and costs. Compare it to your last Loan Estimate.

Conventional loan

A mortgage not insured or guaranteed by a government agency; most follow Fannie Mae or Freddie Mac guidelines.

D

Debt-to-income ratio (DTI)

Your total monthly debt payments, including the new house payment, divided by your gross monthly income.

Debt service coverage ratio (DSCR)

A rental property's monthly rent divided by its monthly payment including taxes, insurance, and HOA (PITIA).

Discount points

An upfront fee, each point equal to 1% of the loan amount, paid to lower the interest rate. Listed in Section A.

E

Earnest money

A deposit you make when your offer is accepted, credited toward your cash to close.

Escrow account

An account your servicer uses to pay property taxes and homeowner's insurance from your monthly payment.

F

FHA loan

A mortgage insured by the Federal Housing Administration (HUD), with flexible credit and down payment guidelines, for primary residences.

H

Homestead exemption

A property tax exemption for your primary residence. In Texas, file with your county appraisal district after you move in.

I

In 5 Years

A page 3 Loan Estimate line showing the total you'll pay and the principal you'll pay off in the first five years. Great for comparing offers.

L

Lender credit

A credit from the lender toward closing costs, usually in exchange for a higher interest rate. Shown in Section J.

Loan Estimate

The standard three-page form a lender must provide within three business days of your application, showing estimated terms and costs.

Loan-to-value (LTV)

The loan amount divided by the home's value. Texas also limits total liens on a homestead cash-out to a share of the home's value.

M

Mortgage insurance (MIP / PMI)

Insurance that protects the lender. FHA loans carry MIP; conventional loans with a smaller down payment usually carry PMI, which can be canceled later.

N

Non-QM loan

A mortgage that isn't a federal Qualified Mortgage, often because income is documented differently, like bank statement or DSCR loans.

O

Origination charges

The lender's own fees for making the loan, plus any discount points. Section A of the Loan Estimate.

P

PITIA

Principal, interest, taxes, insurance, and association (HOA) dues: the full monthly housing payment.

Pre-approval

A lender's review of your credit and documents indicating how much you're likely to qualify for, subject to conditions.

Prepaids

Items paid in advance at closing, like a year of homeowner's insurance and prepaid interest. Section F.

R

Rate lock

A lender's commitment to hold your interest rate and points for a set period. Shown at the top of page 1 of the Loan Estimate.

Recording fees

Government fees to record your deed and mortgage. Section E.

S

Section 50(a)(6)

The part of the Texas Constitution that governs home equity and cash-out loans on homesteads, including the total-lien limit, 12-day wait, and fee cap.

Seller credit

Money the seller agrees to pay toward your closing costs, negotiated in your contract and shown in Calculating Cash to Close.

T

T-47 affidavit

A Texas form where the seller swears the property hasn't changed since an existing survey, which may let you reuse that survey.

Title insurance

Insurance protecting the lender (lender's policy) and optionally you (owner's policy) against title defects. Texas premiums are set by the state.

Total Interest Percentage (TIP)

The total interest you'd pay over the loan term as a percentage of the loan amount. Page 3 of the Loan Estimate.

Transfer tax

A tax on transferring real estate. Texas has none; Tennessee charges a realty transfer tax plus a mortgage tax.

V

VA funding fee

A one-time fee paid to VA on most VA loans; veterans receiving VA disability compensation are generally exempt.