Mortgage glossary

Amortization

The schedule by which a loan is paid off over time. Early payments go mostly toward interest, and the share going to principal grows as the balance falls.

Annual percentage rate (APR)

A rate that reflects the interest rate plus certain loan costs, intended to make comparisons between offers more meaningful than the interest rate alone.

Appraisal

An independent opinion of a property's market value, ordered by the lender to confirm the home supports the loan amount.

Cash to close

The total funds you bring to closing: down payment plus closing costs and prepaid items, minus any credits and earnest money already paid.

Closing costs

Fees and prepaid items required to complete the transaction, separate from the down payment. Includes lender, title, recording, and escrow items.

Closing Disclosure

The document showing final loan terms and costs, provided before closing so you can review the numbers and compare them with your Loan Estimate.

Conforming loan limit

The maximum loan amount that can be purchased by Fannie Mae or Freddie Mac in a given county. Loans above it are considered jumbo.

Contingency

A condition in a purchase agreement that must be satisfied for the contract to proceed, such as financing, appraisal, or inspection contingencies.

Debt-to-income ratio (DTI)

Your total monthly debt obligations divided by gross monthly income. A primary measure lenders use to evaluate affordability.

Down payment

The portion of the purchase price you pay from your own funds or eligible gift or assistance funds, rather than borrowing.

Earnest money

A deposit submitted with your offer showing good faith. It is typically credited toward your cash to close at closing.

Equity

The difference between what your home is worth and what you owe on it.

Escrow account

An account held by your loan servicer that collects a portion of your property taxes and insurance monthly and pays them when due.

Fixed-rate mortgage

A loan whose interest rate stays the same for the entire term, keeping the principal and interest portion of the payment stable.

Adjustable-rate mortgage (ARM)

A loan with an interest rate that is fixed for an initial period and then adjusts periodically according to defined terms.

Gift funds

Money provided by an eligible donor toward your down payment or closing costs. Documentation requirements apply and vary by program.

Homeowners association (HOA) dues

Regular payments to an association for shared maintenance, amenities, or insurance. Counted in your monthly obligations for qualification.

Loan Estimate

A standardized early disclosure showing estimated loan terms, payments, and closing costs so you can compare offers.

Loan-to-value ratio (LTV)

The loan amount divided by the property value. Lower LTV generally means more equity and can affect pricing and mortgage insurance.

Mortgage insurance

Insurance that protects the lender against loss. Required on many loans with smaller down payments, with rules that differ by program.

Origination

The process of creating a new mortgage loan, from application through underwriting and closing.

PITI

Principal, interest, taxes, and insurance, the four core components of most monthly mortgage payments.

Points

An optional upfront cost paid to reduce the interest rate. Whether points pay off depends on how long you keep the loan.

Pre-approval

A lender review of your credit, income, and assets resulting in a written statement of what you may qualify for, subject to conditions and final approval.

Pre-qualification

An informal early estimate based on information you provide, generally without full documentation review. Less weight than a pre-approval.

Principal

The amount borrowed, or the remaining balance owed, excluding interest.

Rate lock

An agreement that holds an interest rate for a set period while your loan is processed, subject to the terms of the lock.

Reserves

Funds remaining after closing, often measured in months of housing payments. Some programs require a minimum amount.

Special assessment

A charge levied by a city or an association for a specific project or repair, separate from regular taxes or dues.

Title insurance

Coverage protecting against certain defects in the property's ownership history. Lender and owner policies serve different parties.

Underwriting

The lender's review of your documentation and the property to determine whether the loan meets program guidelines.

All loan scenarios are subject to credit approval, income and asset verification, and property eligibility. Program availability may vary and terms are subject to change. Nothing on this site is a commitment to lend, an offer of credit, or a rate quote. Consult Alyson for current options.