Mortgage Glossary | 50 Terms You Should Know

One of the more daunting parts of buying a home, besides ensuring that you can afford the investment in the first place, is making sense of all the terms and jargon that accompany the process.

To help you feel more confident in the homebuying process, we’ve compiled a list of 50 must-know mortgage terms.


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Adjustable rate mortgage (ARM)

An adjustable rate mortgage (ARM) is a mortgage loan type in which your interest rate will change based on overall market rates. Thus, your monthly payments will fluctuate throughout the life of your mortgage loan. The initial interest rate and monthly payment will be lower with an ARM, but both are subject to increase substantially.


Amortization is the process of paying down your home loan by making regular monthly payments, reducing your debt over time. To amortize your mortgage, you will typically need to ensure that your payments cover both interest and principal.

Annual percentage rate (APR)

The annual percentage rate (APR) is the annual rate charged for borrowing money, versus a monthly fee/interest rate. Because your APR takes various costs and fees into account, it is typically larger than your interest rate.


A home appraisal provides the estimated value of a real estate property.


Assets are valuable items, resources, or property that you own and that have a cash value. Some examples of assets include checking and savings accounts, stocks and bonds, and 401(k) and IRA accounts.

Your lender will verify your assets when you apply for a mortgage. Lenders assess your assets to ensure that you have enough money in savings and investments to cover your mortgage payments in the case of a financial hardship or emergency.



Balloon loan

A balloon loan means that you will have one larger, one-time payment at the end of your loan term. This payment can be much higher than your usual payments, and if you’re unable to pay it, you may need to refinance your mortgage. Or, in some cases, you may face foreclosure.




Closing is the last step in the homebuying process. At closing, the deed will be delivered and signed, closing costs will be paid, and you will be given the keys to your new home.

Closing costs

Closing costs cover the expenses associated with the homebuying process and transaction. Closing costs may vary by location and lender but typically include the loan origination fee, insurance fees, and attorney fees.

Conforming loan

A conforming loan is a type of home loan that is below a set dollar amount and that meets specific Fannie Mae and Freddie Mac funding criteria. Conforming loans are typically underwritten and funded by lenders and then sold to investors, such as Fannie Mae or Freddie Mac.

Construction loan

A construction loan is a short-term loan that is used to cover home renovation, construction, or rehabilitation projects.

Contract of sale

A contract of sale is a written agreement between a buyer and seller, conveying the title and that certain conditions have been met and payments have been made.

Conventional mortgage

A conventional mortgage is any type of home loan that isn’t insured by a government agency/entity.


A co-signer or co-borrower is someone who signs your loan and agrees to take responsibility for paying back the loan with you. If you have a low credit score or are experiencing difficulty in securing financing to purchase a home, a creditworthy co-signer or co-borrower can increase your chances of qualification, as well as help you secure better rates and terms.



Debt-to-income (DTI) ratio

Your debt-to-income ratio is a percentage representing all your monthly debt payments divided by your monthly gross income. Loan underwriters will verify your DTI ratio to see how much income you have to cover mortgage payments after other debt payments are made each month.


A deed is a document proving that you own your home and have a title to the property.

Discount points

Discount points are an optional cost you can pay at closing to “buy” a lower interest rate. Typically, one discount point is equal to one percent of your loan and you will be required to pay points in cash at closing, thus increasing your upfront costs but reducing your monthly interest payment amount.

Down payment

A down payment is a portion of the sales price of a home that is paid at closing. A traditional down payment is 20 percent, but in most cases, a lower down payment can be made.



Earnest money deposit

An earnest money deposit is a deposit a homebuyer pays to confirm a signed contract agreement to buy a house. The house seller or another third party (e.g. a real estate agent) holds the money until closing. When you close on a home sale, the earnest money can be applied to your down payment or closing costs. If the contract is terminated before closing for an acceptable reason, the money will be returned to the buyer.


Equity is how much money you have paid into your house — how much your home is currently worth minus the amount of remaining mortgage.


Escrow covers property-related expenses like homeowners insurance or property tax. Typically, your mortgage lender will set up an escrow account for you, and a portion of your monthly payment will go into your account, covering additional property expenses.



Fannie Mae

The Federal National Mortgage Association (Fannie Mae) is a U.S. government-sponsored agency that provides mortgage options to low- and moderate-income homebuyers. To increase affordable lending, Fannie Mae purchases and backs mortgages from lending institutions.

FHA loan

An FHA loan is a government-insured mortgage backed by the Federal Housing Administration. FHA loans are a great option for first-time homebuyers because they typically have lower down payment and minimum credit score requirements, making it easier to qualify for financing. Many private lenders offer this loan type.

Fixed rate mortgage

A fixed rate mortgage is a type of loan that has a set interest rate at the time of mortgage purchase that will never change throughout the life of the loan.


If you fail to make your monthly mortgage payments, one possible consequence is foreclosure, through which your lender or servicer takes back your property. If the foreclosure process is initiated, your lender or servicer is generally required to send you notification. Some foreclosure proceedings involve a court process, but not all.

Freddie Mac

The Federal Home Loan Mortgage Corporation (Freddie Mac) is a U.S. government-sponsored agency under the direction of the Federal Housing Finance Agency (FHFA). Freddie Mac purchases mortgage loans from lenders and servicers to promote affordable lending practices.



Home equity line of credit (HELOC)

A home equity line of credit (HELOC) allows you to borrow money against your home equity. A HELOC is a line of credit, meaning that you withdraw funds as needed, not all at once, and you will typically have an adjustable interest rate. There will be a determined “draw period” for your HELOC, which will allow you to draw funds during a set period of time — once the period ends, you will no longer be able to withdraw funds. You will be required to make minimum payments throughout the draw period, and you may be required to pay your complete balance when the draw period ends.

Home equity loan

A home equity loan allows you to borrow money against your home equity. You will receive funds as a lump sum, and you will typically have a fixed interest rate.

Home inspection

A home inspection is typically part of the homebuying process. It is important to order a home inspection to ensure that the home’s structure and systems are in good repair.

Homeowners insurance

Homeowners insurance is a form of insurance that can cover losses or damages to your home. It typically covers four types of damage: interior damage, exterior damage, loss or damage of personal belongings, and injury that may occur on your property. Homeowners insurance shouldn’t be confused with a home warranty or mortgage insurance.



Jumbo loan

A jumbo loan is a type of home loan that exceeds the limits set by Fannie Mae and Freddie Mac. These loans have higher credit score requirements and are typically reserved for the purchase of luxury properties.



Loan-to-value (LTV) ratio

The loan-to-value (LTV) ratio compares your mortgage amount to the value of your property. Lenders may consider your LTV ratio to determine whether or not they will lend to you, as well as whether or not they’ll require you to pay private mortgage insurance (PMI). The higher your down payment on a property, the lower your LTV ratio will be.




A mortgage is a specific type of loan used for a property or home purchase. Mortgages are commonly offered by private lenders, brokers, banks, and credit unions. You will be required to make monthly payments on your mortgage payment, including interest, for the set term of your loan.



Non-conforming loan

A non-conforming loan is a mortgage loan that doesn’t meet the Fannie Mae and Freddie Mac guidelines, thus disqualifying it from being sold to either government-sponsored enterprise. These types of loans typically have higher interest rates.



Origination fee

An origination fee is a fee charged by a mortgage lender to cover the cost of processing a loan.




Pre-approval is a preliminary assessment of whether or not a lender will lend to a specific borrower. If you, as a borrower, are approved, you will typically receive a pre-approval letter, which can be used as a confirmation of financing when placing an offer on a house.


Pre-qualification is not the same as pre-approval. Pre-qualification simply gives you an idea of how much you would qualify for for a loan, but is not binding in any way.


The principal is the amount that you have to pay back on your mortgage. Your monthly payments will include a portion of the principal, ensuring that you pay back your borrowed amount in full.

Private mortgage insurance (PMI)

Private mortgage insurance (PMI) is a type of insurance for your lender if you make a down payment under 20 percent. Once you’ve accumulated a certain amount of equity in your home, you should be able to cancel your PMI.

Property tax

Property tax is typically charged at a local level based upon the value of your property. Property taxes are typically collected through your monthly mortgage payment and will be added to your escrow account. If you don’t have an escrow account, you will be responsible for paying the property taxes directly.



Real estate agent

A real estate agent is a licensed real estate professional who represents either a buyer or seller in a real estate transaction. You typically don’t pay a real estate agent directly — they are typically compensated through a percentage of the property’s purchase price.


Refinancing refers to the process in which you replace your loan with another to secure better rates and terms.

Reverse mortgage

A reverse mortgage is reserved for homeowners who are 62 years of age or older, and allows them to access their home equity. Reverse mortgages are different from home equity loans or home equity lines of credit (HELOCs) because instead of the homeowner making payments to a lender, the lender will release funds to the homeowner. The money you receive, as well as interest, will increase the balance of your loan each month.




Settlement is the final stage in a real estate transaction when the ownership of the property is transferred from seller to buyer.

Short sale

A short sale refers to a home being sold for less than what remains on the existing mortgage. It is an alternative to foreclosure, but because the home is being sold, you will be required to leave.




The term of your mortgage is the set amount of time that you will be making monthly payments to completely pay off your loan. Typical mortgage loan terms range from 15 to 30 years.


A title is the physical document that states that you own your home or property. The title will also show past property owners, as well as a description of the property.




Underwriting is part of the mortgage process in which you, as a borrower, are assessed as an acceptable risk by your lender. An underwriter will analyze your documentation, credit history, and financial history, after which a lending decision will be made. There are typically fees associated with the underwriting process that you will pay as part of your closing costs.

USDA loan

A USDA loan is a government-insured loan backed by the U.S. Department of Agriculture (USDA). This mortgage program is reserved for eligible rural properties that are outlined and approved by the Rural Housing Service. Typically, USDA loans have a 0 percent down payment and favorable rates.



VA loan

A VA loan is a government-insured loan backed by the U.S. Department of Veteran Affairs (VA). This mortgage program is reserved for U.S. military service members, veterans, and eligible spouses, and helps them buy homes. The VA guarantees a portion of the loan, reducing the risk of loss for a lender, and this loan type typically has a zero down payment with favorable rates.

Variable interest rate

A variable interest rate refers to a rate that will fluctuate throughout the life of your mortgage loan. You will typically have a lower starting rate, but it is very likely that your rate will rise as the market experiences various ebbs and flows.

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