Mortgage vocabulary is largely industry shorthand, and most definitions available online restate the term rather than explain what it does to you. These entries focus on the practical consequence — what changes for a borrower when the term applies.
Where a term connects to something you can actually calculate, there's a link to the relevant tool.
The schedule that splits each payment between interest and principal. Because interest is charged on the outstanding balance, early payments are mostly interest and late payments are mostly principal. This is why extra principal early has outsized effect and why refinancing into a fresh 30-year term restarts the interest-heavy portion. Mortgage payment calculator →
A rate that folds certain loan costs into the interest rate to give a single comparison figure. APR is generally higher than the note rate because it includes fees. It's useful for comparing offers with different fee structures, though it assumes you keep the loan to term — which most borrowers don't.
A licensed appraiser's opinion of a property's market value, ordered by the lender to confirm the collateral supports the loan. If the appraisal comes in below the contract price, the lender lends against the lower figure and the buyer covers the gap or renegotiates.
A loan a buyer can take over from the seller, inheriting the original rate and remaining term. FHA, VA, and USDA loans are generally assumable; most conventional loans are not. Valuable when the existing rate is well below current market. Assumable mortgages explained →
An arrangement where money placed in escrow at closing subsidizes the payment for the first year or two, after which the full note rate applies. The loan itself never changes. Typically funded by a seller concession. Buydown calculator →
Replacing your mortgage with a larger one and taking the difference in cash. Priced higher than a rate-and-term refinance and subject to tighter equity limits. Converts home equity into spendable money — and converts unsecured debt into debt secured by the house. Refinance calculator →
Fees due at closing: origination, appraisal, title insurance, recording, prepaid taxes and insurance, and more. Commonly 2–5% of the purchase price for a buyer. Can be paid in cash, rolled into the loan, or covered by a lender credit in exchange for a higher rate. Closing costs explained →
A loan meeting the size and underwriting standards that allow it to be sold to Fannie Mae or Freddie Mac. Conforming status is what makes a loan liquid and standardized, which is why conforming rates are typically better than jumbo rates.
Monthly debt obligations divided by gross monthly income. Only obligations appearing on your credit report count — groceries and utilities don't. For credit cards, only the minimum payment counts regardless of balance. DTI calculator →
Money paid at closing to permanently lower the note rate. One point is 1% of the loan amount. Pays off only if you keep the loan past the breakeven, which makes it a bet on how long you'll stay. Points vs. buydowns →
A deposit made when your offer is accepted, showing you're serious. Applied toward your down payment or closing costs at settlement. Generally refundable if you exit under a contingency, at risk if you walk for reasons outside one.
The difference between what the home is worth and what you owe. Builds through principal payments and through appreciation. Illiquid — accessing it requires selling, refinancing, or a home equity line.
An account your servicer uses to collect and pay property taxes and insurance on your behalf. Funded monthly as part of your payment. Re-analyzed annually, which is why a fixed-rate payment can still change. Escrow shortage calculator →
A government-insured loan allowing down payments as low as 3.5% with more flexible credit requirements. Carries both an upfront and an annual mortgage insurance premium; at minimum down payment the annual premium generally lasts the life of the loan. FHA loan requirements →
Housing payment divided by gross monthly income, ignoring other debts. The 28% guideline refers to this ratio. Underwriting weighs the back-end ratio more heavily in practice. Affordability calculator →
Down payment money from family. Permitted by all major loan programs, but requires a gift letter confirming no repayment is expected plus documentation of the transfer. Seasoning the funds early reduces friction at underwriting. Down payment savings calculator →
A loan exceeding the conforming limit for its county. Held on lender balance sheets or sold through non-agency channels, with stricter credit, reserve, and down payment requirements. Jumbo loan scenario →
A standardized three-page disclosure lenders must provide within three business days of application. Because the format is fixed, it's the only reliable way to compare offers side by side.
Loan amount divided by property value. Drives pricing adjustments and mortgage insurance requirements. The 80% threshold is where conventional PMI ends and risk-based pricing adjustments largely disappear.
A commitment from the lender to hold a quoted rate for a set period, commonly 30 to 60 days. Extending a lock costs money, which is why closing delays have a financial cost beyond inconvenience. Rate lock-in calculator →
Insurance protecting the lender when a conventional borrower puts down less than 20%. Cancellable at 20% equity by request and terminates automatically at 22%. Distinct from FHA mortgage insurance, which follows different rules. PMI removal calculator →
A charge for processing the loan, usually expressed as a percentage of the loan amount. Negotiable at some lenders, fixed at others. Appears on the Loan Estimate.
Principal, Interest, Taxes, and Insurance — the four components of a typical mortgage payment. Principal and interest are fixed on a fixed-rate loan; taxes and insurance are not, which is the mechanism behind payment changes. Mortgage payment calculator →
A lender's conditional commitment based on verified income, assets, and credit. Stronger than a pre-qualification, which is based on stated information and carries little weight with sellers. Pre-qualification vs. pre-approval →
Replacing a loan with a similarly sized one at different terms, without taking cash out. Priced better than a cash-out refinance. Refinance calculator →
Recalculating your required payment against a reduced balance after a lump-sum principal payment, keeping your existing rate and term. Costs a few hundred dollars rather than full closing costs. Rarely advertised — you generally have to ask. Extra payment calculator →
Liquid assets remaining after closing, measured in months of housing payments. Required by some programs and viewed favorably by underwriting generally. Practically, the buffer that keeps a repair from becoming credit card debt.
How long funds have been in your account or how long you've held a loan. Lenders scrutinize recent large deposits because an undocumented deposit could be a hidden loan that changes your DTI.
An amount the seller agrees to contribute toward the buyer's closing costs or a rate buydown. Limited by program rules. Economically it came out of the negotiation, so it's worth comparing against an equivalent price reduction.
The company that collects your payments, manages your escrow account, and handles the loan day to day. Often not the lender who originated the loan, and can change during the life of the loan.
Coverage against defects in the property's ownership history. A lender's policy protects the lender; an owner's policy protects you and is generally optional but inexpensive relative to what it covers.
The evaluation of your income, assets, credit, and the property against program guidelines. Where conditions are issued and where deals most often stall.
A loan guaranteed by the Department of Veterans Affairs for eligible service members and veterans. No down payment required and no monthly mortgage insurance, though a one-time funding fee generally applies. VA loan scenario →
A condo project meeting conventional eligibility standards for reserves, owner-occupancy, delinquency, and litigation. Non-warrantable projects generally require portfolio financing at higher cost. Condo reserve calculator →
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PMI applies to conventional loans and can be cancelled at 20% equity, terminating automatically at 22%. FHA mortgage insurance follows separate rules and, at the minimum 3.5% down payment, generally lasts the life of the loan — refinancing to conventional is the usual exit.
No. The note rate determines your payment. APR folds certain loan costs into a single figure for comparison, so it's typically higher. APR assumes you keep the loan for its full term, which limits how useful it is if you expect to move or refinance.
It means the project doesn't meet conventional eligibility standards — commonly due to reserve funding, owner-occupancy share, delinquency rates, or litigation. Financing is still possible through portfolio lenders, generally at a larger down payment and a higher rate.
Underwriting measures required monthly obligations, and the required amount on a credit card is the minimum. This produces the counterintuitive result that a large balance with a small minimum affects your ratio less than a small loan with a fixed payment.