Mortgage Glossary
Every mortgage term explained in plain English — no jargon, no fluff. Whether you're a first-time buyer or a seasoned investor, knowing the language helps you make better decisions.
A
Adjustable-Rate MortgageARM
A mortgage with an interest rate that can change periodically after an initial fixed period (e.g., 5/1 ARM = fixed for 5 years, then adjusts annually). Initial rates are often lower than fixed-rate loans, but payments can rise if market rates increase.
Amortization
The process of paying off a loan through regular monthly payments. Early payments are mostly interest; later payments go mostly toward principal. A 30-year amortization means your loan is fully paid off after 360 monthly payments.
Annual Percentage RateAPR
The true annual cost of borrowing, expressed as a percentage. APR includes the interest rate plus lender fees and points, giving you a more complete cost comparison than the note rate alone.
Appraisal
A licensed appraiser's professional opinion of a property's current market value. Lenders require an appraisal to ensure the loan amount doesn't exceed the property's worth.
Asset Depletion Loan
A Non-QM loan program that lets you qualify using liquid assets (savings, investments, retirement accounts) as "income." The lender divides your total assets over the loan term to calculate a monthly income figure—ideal for retirees or asset-rich borrowers.
Assumable Mortgage
A mortgage that can be transferred from the seller to the buyer, allowing the buyer to take over the existing loan's rate and terms. Especially valuable when existing rates are lower than current market rates.
B
Balloon Payment
A large lump-sum payment due at the end of a short-term loan (e.g., 5 or 7 years). Often used in bridge loans or commercial financing. The borrower either pays it off or refinances into a new loan at that point.
Bank Statement Loan
A Non-QM mortgage for self-employed borrowers who qualify using 12–24 months of bank deposits instead of W-2s or tax returns. Ideal for business owners whose tax returns show less income than their actual cash flow.
Learn about Bank Statement Loans →Basis Pointsbps
A unit of measurement equal to 1/100th of 1%. Lenders use basis points to describe small rate changes. 25 basis points = 0.25%. A rate moving from 6.50% to 6.75% increased by 25 bps.
Bridge Loan
Short-term financing (typically 6–18 months) used to "bridge" the gap between buying a new property and selling or refinancing an existing one. Higher rates than permanent mortgages; interest-only payments are common.
Broker Price OpinionBPO
A real estate broker's estimate of a property's market value, less formal and less expensive than a full appraisal. Commonly used by lenders in short sales, foreclosures, and loss mitigation scenarios.
Buydown
A way to reduce the mortgage interest rate by paying upfront fees at closing. A 2-1 buydown temporarily lowers the rate by 2% in year 1 and 1% in year 2. A permanent buydown (discount points) reduces the rate for the life of the loan.
C
Cash-Out Refinance
Replacing your existing mortgage with a larger loan and taking the difference in cash. Example: you owe $300K on a $500K home—a cash-out refi lets you borrow $400K, paying off the original and pocketing $100K for renovations, debt payoff, or investments.
Read: Cash-Out Refinancing Guide →Closing Costs
Fees and expenses paid at loan closing, typically 2–5% of the loan amount. They include lender fees, appraisal, title insurance, attorney fees, prepaid items (taxes, insurance), and recording fees.
Closing DisclosureCD
The final five-page document provided to borrowers at least 3 business days before closing. It details the final loan terms, costs, and cash needed at closing. Compare it carefully against your Loan Estimate.
Conforming Loan
A mortgage that meets Fannie Mae and Freddie Mac guidelines, including loan limit thresholds (e.g., $806,500 for most areas in 2025). Conforming loans typically offer the lowest rates. Loans exceeding the limit are "jumbo" loans.
Construction Loan
Short-term financing used to fund the building of a new home. Funds are disbursed in draws as construction progresses. Once complete, the loan typically converts to a permanent mortgage (construction-to-perm) or is paid off through a new loan.
Conventional Loan
A mortgage not backed by a government agency (not FHA, VA, or USDA). Conventional loans can be conforming (sold to Fannie/Freddie) or non-conforming (jumbo). They generally require stronger credit and a larger down payment.
Credit Score
A numerical score (typically 300–850) that represents your creditworthiness based on payment history, debt levels, credit age, and mix. Most lenders use FICO scores. Higher scores qualify for better rates; 620+ is usually needed for conventional loans.
D
Debt-to-Income RatioDTI
Your total monthly debt payments divided by your gross monthly income, expressed as a percentage. Lenders use DTI to assess affordability. Conventional loans typically allow up to 45–50% DTI; Non-QM programs can go higher.
Deed of Trust
A legal document used in some states (including Florida) instead of a mortgage. It pledges the property as collateral for the loan. Three parties are involved: the borrower (trustor), lender (beneficiary), and a neutral third party (trustee).
Default
Failure to meet the legal obligations of a mortgage—typically by missing payments. After a certain number of missed payments, the lender can begin foreclosure proceedings. Defaults severely damage credit scores.
Discount Points
Prepaid interest paid at closing to permanently reduce your mortgage rate. One point = 1% of the loan amount. Paying 1 point on a $400K loan costs $4,000 upfront and might reduce your rate by 0.25%, saving money over time if you keep the loan long enough.
Down Payment
The portion of the purchase price you pay upfront in cash. The remaining amount is financed. Conventional loans can require as little as 3–5% down; 20% down avoids private mortgage insurance (PMI). FHA requires 3.5% with good credit.
DSCR Loan
Debt Service Coverage Ratio loan—a Non-QM investment property loan where qualification is based on the property's rental income rather than the borrower's personal income. DSCR = Monthly Rent ÷ Monthly PITIA. A ratio ≥ 1.0 means the rental covers the mortgage.
Read: DSCR Investment Loans Miami →Due Diligence
The investigation and verification process completed by a buyer or lender before closing. Includes reviewing title, appraisal, inspection reports, title history, zoning, and financial documents to confirm the transaction is sound.
E
Earnest Money
A good-faith deposit (typically 1–3% of the purchase price) made by the buyer when a purchase contract is signed. It demonstrates serious intent to buy. If the deal closes, it's applied to your down payment or closing costs. If you back out without a valid contingency, you may lose it.
Equity
The portion of your home's value you actually own—the difference between the market value and what you owe on the mortgage. Example: $500K home − $300K loan = $200K equity. Equity builds through appreciation and paying down principal.
Escrow
A neutral third-party account that holds funds or documents during a real estate transaction. At closing, escrow distributes funds to the appropriate parties. Post-closing, your lender may maintain an escrow account for property taxes and homeowners insurance, collecting monthly amounts with your mortgage payment.
Estimated Closing Costs
A lender's preliminary estimate of the fees and charges you'll pay at closing. Under TRID rules, this must be provided in your Loan Estimate within 3 business days of application. Compare estimates from multiple lenders.
F
Fair Market ValueFMV
The price a willing buyer and willing seller would agree on in an arm's-length transaction with full information. Appraisers determine FMV; it drives the lender's loan amount limits.
Fannie Mae
The Federal National Mortgage Association—a government-sponsored enterprise (GSE) that buys conforming mortgages from lenders, securitizes them, and sells them to investors. This frees up capital for new loans. Fannie Mae sets underwriting guidelines that most lenders follow.
FHA Loan
A government-backed mortgage insured by the Federal Housing Administration. Requires as little as 3.5% down (with 580+ credit) or 10% down (500–579 credit). Great for first-time buyers but requires upfront and annual mortgage insurance premiums regardless of equity.
Fixed-Rate Mortgage
A mortgage where the interest rate stays the same for the entire loan term (e.g., 15, 20, or 30 years). Your principal and interest payment never change, making budgeting straightforward. Typically higher initial rates than ARMs.
Fix-and-Flip Loan
Short-term bridge financing (typically 12–18 months) for real estate investors who buy, renovate, and sell properties for profit. Lenders fund both the purchase and renovation costs. Rates are higher than traditional mortgages, but approval is asset-based and fast.
Read: Fix & Flip Loans Miami →Float Down
An option that allows a borrower to lock an interest rate but also benefit if rates drop before closing. Usually requires a fee. If rates decrease by a certain amount (the "trigger"), the rate automatically resets to the lower level.
Forbearance
A temporary pause or reduction in mortgage payments agreed upon by the lender when a borrower is experiencing financial hardship. Interest continues to accrue. The missed payments must be repaid—usually through a lump sum, repayment plan, or loan modification.
Foreign National Loan
A mortgage program designed for non-U.S. citizens purchasing property in the U.S. These Non-QM loans don't require a Social Security number or U.S. credit history. Common in Miami for buyers from Latin America, Europe, and beyond.
Read: Foreign National Loans Miami →Freddie Mac
The Federal Home Loan Mortgage Corporation—another GSE that purchases conforming mortgages from lenders and securitizes them. Along with Fannie Mae, Freddie Mac underpins the U.S. secondary mortgage market and publishes widely followed conforming loan limits.
G
Good Faith EstimateGFE
An older disclosure form that estimated closing costs for borrowers. It was largely replaced by the Loan Estimate under TRID regulations effective October 2015. You may still hear the term used informally.
Government Loan
A mortgage backed or insured by a federal agency—specifically FHA, VA, or USDA loans. Government backing reduces lender risk, which often results in more flexible qualification standards, lower down payment requirements, and competitive rates.
Guarantee FeeG-Fee
A fee charged by Fannie Mae or Freddie Mac to lenders in exchange for guaranteeing the timely payment of principal and interest on mortgage-backed securities. G-fees are ultimately passed to borrowers through the interest rate.
H
Home Equity Line of CreditHELOC
A revolving line of credit secured by your home's equity, similar to a credit card. You borrow what you need, when you need it, up to an approved limit. Interest-only payments during the draw period. Rates are variable. Great for renovations or business capital.
Read: HELOC for Business Capital Miami →Homeowners AssociationHOA
An organization in a planned community, condo, or subdivision that creates and enforces rules for properties and common areas. Owners pay monthly or annual HOA dues. Lenders count HOA fees in your debt-to-income ratio.
Homeowners Insurance
Insurance that protects against losses from fire, theft, certain natural disasters, and liability. Lenders require it as a condition of the mortgage. In South Florida, flood insurance may be required separately for properties in flood zones.
HUD
The U.S. Department of Housing and Urban Development. HUD oversees FHA, public housing, and fair housing laws. The "HUD-1" was the settlement statement used pre-TRID. HUD also publishes consumer resources for homebuyers.
I
Interest-Only LoanI/O
A loan where you pay only the interest for an initial period (typically 5–10 years) before payments switch to principal + interest. I/O loans have lower initial payments but do not build equity during the interest-only period.
Interest Rate
The percentage charged by the lender on the principal loan balance, expressed annually. Your note rate determines your monthly principal and interest payment. The APR (which includes fees) gives a fuller cost picture.
Investment Property
Real estate purchased to generate rental income or appreciation rather than as a primary residence. Investment properties typically require larger down payments (20–25%), carry higher interest rates, and have stricter qualifying standards.
Read: Investment Property Financing Miami →J
Jumbo Loan
A mortgage that exceeds the conforming loan limit set by Fannie Mae and Freddie Mac ($806,500 in most U.S. markets for 2025). Jumbo loans are not government-backed, require stronger credit, larger down payments, and more cash reserves.
Read: Jumbo Loans Miami →Junior Lien
Any mortgage or lien on a property that is subordinate to the first (senior) mortgage. Second mortgages and HELOCs are junior liens. In foreclosure, the first mortgage is paid before junior lienholders, making them higher risk.
L
Lender Credit
Money the lender gives you toward closing costs in exchange for a higher interest rate. It reduces your upfront cash needs but increases your monthly payment. Useful if you're short on cash to close.
Lien
A legal claim against a property by a creditor. Your mortgage is a lien. Tax liens, judgment liens, and mechanic's liens can also attach to property. All liens must be resolved before a clean title can transfer at closing.
Loan EstimateLE
A standardized 3-page disclosure provided within 3 business days of a loan application under TRID rules. It details the estimated rate, monthly payment, and closing costs. Use it to compare offers from multiple lenders before committing.
Loan OfficerLO
A licensed professional who originates mortgage loans—takes applications, advises borrowers, structures loans, and guides the file through underwriting to closing. A loan officer at a mortgage brokerage shops multiple lenders for you.
Loan-to-ValueLTV
The ratio of the loan amount to the appraised property value. LTV = Loan ÷ Value × 100. An 80% LTV means you're borrowing 80% of the home's value (20% down). Lower LTV = less lender risk = potentially better rate.
Lock Period
The window of time during which your interest rate is guaranteed—typically 15 to 60 days. If you don't close before the lock expires, you may need to pay to extend it, and rates may change. Longer locks cost more.
M
Mortgage Broker
A licensed professional who acts as an intermediary between borrowers and multiple lenders. Unlike a bank that offers only its own products, a mortgage broker shops dozens of lenders to find the best rate and program for your situation—without charging extra.
Mortgage InsuranceMI / PMI
Insurance that protects the lender if you default. Required on conventional loans with less than 20% down (PMI) and on all FHA loans (MIP). PMI can be removed once you reach 20% equity. FHA MIP typically lasts the life of the loan.
Mortgage Note
The legal document you sign that is a personal promise to repay the loan. It specifies the loan amount, interest rate, repayment schedule, and consequences of default. The note is distinct from the deed of trust, which pledges the property as collateral.
N
Negative AmortizationNeg-Am
When monthly payments are less than the interest accruing, causing the loan balance to grow over time instead of shrink. Common in certain ARM products with payment caps. Can result in owing more than you originally borrowed.
No-Doc Loan
A mortgage that requires minimal or no documentation of income or assets. Popular before 2008, rare today. Modern alternatives include bank statement loans and DSCR loans, which are documented through alternative means rather than traditional pay stubs.
Non-QM Loan
A "Non-Qualified Mortgage"—any loan that doesn't meet the Consumer Financial Protection Bureau's (CFPB) Qualified Mortgage standards. Non-QM loans serve self-employed borrowers, investors, foreign nationals, and others who don't fit conventional boxes.
Read: Self-Employed Mortgage Miami →Non-Warrantable Condo
A condominium that doesn't meet Fannie Mae or Freddie Mac guidelines—often because the HOA has too many investor-owned units, pending litigation, or budget issues. Financing requires specialized lenders and typically larger down payments.
Read: Non-Warrantable Condo Loans Miami →Note Rate
The interest rate stated on the mortgage note—the base rate used to calculate your monthly principal and interest payment, before factoring in fees. Also called the "contract rate" or simply "the interest rate." Distinct from the APR.
O
Origination Fee
A fee charged by the lender (or broker) for processing the loan. Often expressed as a percentage of the loan amount (e.g., 1%). Compare origination fees carefully across lenders—sometimes a lower rate comes with a higher origination fee.
Owner-Occupied
A property where the borrower lives as their primary residence. Owner-occupied loans offer the best rates and the lowest down payments. Second homes and investment properties carry higher rates and larger minimum down payments.
P
PITI
Principal, Interest, Taxes, and Insurance—the four components of your total monthly mortgage payment. Most lenders escrow taxes and insurance, collecting them monthly alongside principal and interest.
Points
Fees equal to 1% of the loan amount, paid upfront at closing. "Discount points" buy down your interest rate. "Origination points" compensate the lender or broker. Always compare both points and rate together for an apples-to-apples comparison.
Pre-Approval
A conditional commitment from a lender stating you qualify for a specific loan amount, based on a verified application (credit pull, income docs, assets). Stronger than pre-qualification. Most sellers and agents require a pre-approval letter with your offer.
Pre-Qualification
A preliminary assessment of how much you might qualify for, based on self-reported information—no documentation or hard credit pull. Useful for getting a ballpark estimate, but not a commitment. A pre-approval carries far more weight with sellers.
Principal
The original loan amount borrowed, or the outstanding balance remaining. Your monthly payment includes principal repayment plus interest. Early in the loan, most of your payment is interest; over time, a larger share goes to principal.
Private Mortgage InsurancePMI
Insurance required on conventional loans when the down payment is less than 20%. It protects the lender, not you. PMI is automatically canceled when your loan balance reaches 78% of the original purchase price. You can request cancellation at 80% LTV.
Purchase Agreement
The legally binding contract between buyer and seller that details the terms of the home sale—price, contingencies, closing date, and what's included. Your mortgage application starts in earnest once you have an executed purchase agreement.
Q
Qualifying Ratios
The two DTI ratios lenders use: front-end ratio (housing costs ÷ gross income) and back-end ratio (all debts ÷ gross income). Conventional lenders typically want a front-end ratio below 28% and back-end below 45%, though automated underwriting can approve exceptions.
Quit Claim Deed
A legal document that transfers whatever interest the grantor has in a property to another person—without any warranties or guarantees. Used in divorces, estate transfers, or adding/removing names from a title. It doesn't guarantee a clear title.
R
Rate Lock
A lender's written commitment to hold a specific interest rate for a defined period (e.g., 30 or 45 days) while your loan is processed. Protects you from rate increases before closing. Extended locks cost more. If rates drop significantly, ask about a float-down option.
Refinance
Replacing your existing mortgage with a new loan—typically to get a lower rate, change loan terms, or cash out equity. A rate-and-term refinance changes the rate or term without cashing out. A cash-out refinance lets you access equity as cash.
Explore Refinance Options →Reverse Mortgage
A loan for homeowners 62+ that lets them borrow against their home's equity with no monthly payments required. The loan is repaid when the home is sold, the borrower moves out, or passes away. Insured by FHA under the HECM program.
Right of Rescission
A federal right (Truth in Lending Act) that gives borrowers 3 business days to cancel certain refinance or home equity loans on their primary residence after signing. Not applicable to purchase loans.
S
Second Mortgage
A loan secured by your home that is subordinate to your first mortgage. Examples: HELOCs and home equity loans. Second mortgages have higher rates than first mortgages because they carry more risk for the lender in case of foreclosure.
Seller Concessions
Credits the seller agrees to pay toward the buyer's closing costs. Limits vary by loan type and LTV (e.g., FHA allows up to 6%; conventional allows 2–9% depending on LTV). Seller concessions reduce cash needed to close without changing the purchase price.
Servicing
The ongoing administration of a mortgage—collecting payments, managing escrow accounts, handling delinquencies, and sending statements. The company that services your loan (the "servicer") may be different from the lender who originated it.
Short Sale
The sale of a home for less than the outstanding mortgage balance, with lender approval. Typically used when the borrower is underwater and facing hardship. Less damaging to credit than foreclosure, but still has a significant negative impact.
Subordination
An agreement that places one lien in a lower priority position behind another. When refinancing a first mortgage, if you have a HELOC, the HELOC lender must agree to "subordinate" (remain in second position) behind the new first mortgage.
T
Title Insurance
Insurance that protects against losses from defects in the title—undiscovered liens, forged documents, ownership disputes, or errors in public records. Lenders require a lender's title policy; an owner's policy (separate cost) protects the buyer.
Title Search
A review of public records to trace the history of a property's ownership and identify any liens, encumbrances, or defects. Title companies conduct the search and issue title insurance based on their findings.
TRID
TILA-RESPA Integrated Disclosure rules—effective October 2015. TRID requires lenders to provide a Loan Estimate within 3 business days of application and a Closing Disclosure at least 3 business days before closing, improving transparency and borrower protection.
Truth in LendingTILA
A federal law requiring lenders to disclose the true cost of credit in standardized terms (APR, finance charges, etc.). TILA gives consumers the right to compare loan costs and, for certain loans, the right of rescission.
U
Underwriting
The process by which a lender evaluates a loan application to determine risk. Underwriters verify income, assets, credit, appraisal, and title to ensure the loan meets program guidelines before issuing a final approval (Clear to Close).
USDA Loan
A government-backed mortgage guaranteed by the U.S. Department of Agriculture for eligible rural and suburban properties. USDA loans offer 0% down payment and competitive rates, but borrowers must meet income limits and the property must be in an eligible area.
V
VA Loan
A mortgage guaranteed by the U.S. Department of Veterans Affairs, available to eligible veterans, active-duty service members, and surviving spouses. Key benefits: 0% down payment, no PMI, competitive rates, and flexible credit guidelines.
W
Wraparound Mortgage
An owner-financing arrangement where the seller keeps their existing mortgage and offers the buyer a new, higher mortgage that "wraps around" the original. The buyer pays the seller, who then pays the original lender. Risky if the original loan has a due-on-sale clause.
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