Adjustable-Rate Mortgage (ARM)

A mortgage with an interest rate that adjusts periodically based on a market index after an initial fixed-rate period (e.g., a 5/1 ARM is fixed for 5 years, then adjusts annually).

Amortization

The schedule by which each monthly mortgage payment is split between principal (loan balance) and interest. Early payments are interest-heavy; later payments are principal-heavy.

Annual Percentage Rate (APR)

The all-in yearly cost of a mortgage including the interest rate plus most lender fees and points, expressed as a percentage. APR is the apples-to-apples comparison number across lenders.

Appraisal

An independent valuation of a property ordered by the lender to confirm the home is worth at least the loan amount. Required on nearly all purchase and refinance loans.

Closing Costs

Fees paid at closing to finalize the loan and transfer the property. Typically 2–5% of the loan amount, covering lender fees, title, taxes, insurance, and prepaids.

Conventional Loan

A mortgage not backed by a government agency (FHA, VA, USDA). Conforming conventional loans follow Fannie Mae / Freddie Mac guidelines and allow as little as 3% down.

Debt-to-Income Ratio (DTI)

The percentage of your gross monthly income that goes to all monthly debt payments including the new mortgage. Most loan programs cap DTI between 43% and 50%.

DSCR (Debt-Service Coverage Ratio)

Used for investment property loans: DSCR = gross rental income ÷ proposed PITIA. A DSCR of 1.20 means the property's rent covers 120% of the full payment. See our DSCR Investor Loans guide for full guidelines.

PITIA

Principal + Interest + Taxes + Insurance + Association dues — the all-in monthly housing payment used in DSCR and conventional underwriting calculations.

Down Payment

The portion of the home price paid upfront in cash. Minimums: 0% for VA/USDA, 3% for some Conventional, 3.5% for FHA.

Escrow

An account held by the loan servicer that collects monthly portions of property taxes and homeowners insurance and pays them on your behalf when due.

FHA Loan

A mortgage insured by the Federal Housing Administration, designed for lower credit scores and smaller down payments (3.5% with 580+ FICO).

Fixed-Rate Mortgage

A mortgage with an interest rate that does not change for the entire loan term — most commonly 30 or 15 years.

Interest Rate

The percentage of the loan amount charged annually as the cost of borrowing. Distinct from APR, which also includes fees.

Jumbo Loan

A mortgage that exceeds the conforming loan limit set by the FHFA (varies by county). Typically requires stronger credit, larger down payment, and tighter DTI.

Loan-to-Value Ratio (LTV)

The loan amount divided by the appraised property value, expressed as a percentage. Lower LTV generally means a lower rate and no PMI.

Mortgage Broker

A licensed professional who shops your loan file across many wholesale lenders on your behalf, rather than selling a single bank's products.

Points (Discount Points)

Optional upfront fees paid to the lender to lower the interest rate. One point equals 1% of the loan amount and typically reduces the rate by ~0.25%.

Pre-Approval

A lender's written commitment to lend up to a specific amount, based on verified income, assets, and credit. Required to make competitive offers.

Principal

The original loan amount, and the portion of each monthly payment that reduces the loan balance.

Private Mortgage Insurance (PMI)

Insurance required on Conventional loans with less than 20% down. Protects the lender if you default. Cancellable once you reach 20% equity.

Rate Lock

A lender's commitment to honor a specific interest rate for a set period (typically 30–60 days) while your loan closes.

Refinance

Replacing your existing mortgage with a new one — usually to lower the rate, change the term, or pull cash out of home equity.

USDA Loan

A 0%-down mortgage backed by the U.S. Department of Agriculture for eligible rural and suburban properties and income-qualified borrowers.

VA Loan

A 0%-down mortgage guaranteed by the Department of Veterans Affairs for eligible active-duty service members, veterans, and surviving spouses.

Wholesale Lender

A lender that originates loans through mortgage brokers (not directly to consumers), typically at lower pricing than retail banks.