Mortgage glossary

Reviewed by Jeff Shin, NMLS #1041652. Updated October 7, 2026.

• A
• C
• D
• E
• F
• H
• J
• L
• P
• R
• V

A

Annual percentage rate (APR)

APR, or annual percentage rate, is a broader measure of what a mortgage costs than the interest rate alone. It folds in points, broker fees, and certain other charges you pay to get the loan. Because of that, the APR is usually higher than the interest rate. It is most useful for comparing offers built the same way.

ARM index and margin

On an adjustable-rate mortgage, the rate after the fixed period equals an index plus a margin, within the loan's caps. The index moves with the market. Most new ARMs use SOFR, the Secured Overnight Financing Rate. The margin is a fixed amount the lender sets when you take the loan, written into your note.

C

Closing Disclosure

A Closing Disclosure is the five-page form that gives the final terms and costs of your mortgage, including the rate, monthly payment, closing costs, and cash to close. Your lender must get it to you at least three business days before closing, so you have time to compare it with your Loan Estimate and ask about changes.

Conforming loan limit

The conforming loan limit is the largest mortgage Fannie Mae and Freddie Mac can buy. The Federal Housing Finance Agency resets it every year to track home prices, with higher limits in high-cost counties. A loan at or under the limit for your county is conforming. Above it, the loan is a jumbo.

D

Debt service coverage ratio (DSCR)

DSCR, or debt service coverage ratio, compares a rental property's monthly rent with its full monthly housing payment: principal, interest, taxes, insurance, and any HOA dues. A ratio of 1.00 means the rent exactly covers the payment. DSCR loans use this ratio to qualify an investor on the property's income instead of personal tax returns.

Debt-to-income ratio (DTI)

Your debt-to-income ratio, or DTI, is your total monthly debt payments divided by your gross monthly income, before taxes. For a mortgage, the debts include the new house payment plus car loans, student loans, minimum card payments, and other loans. Lenders use it to judge whether you can carry the new payment.

Discount points

Discount points are a fee you pay the lender at closing in exchange for a lower interest rate. Each point is priced as a share of your loan amount. Paying points raises your cash to close and lowers your monthly payment, so they pay off only if you keep the loan long enough to recover the cost.

E

Escrow account

An escrow account, sometimes called an impound account, is set up by your mortgage lender to pay property taxes and homeowners insurance for you. Part of each monthly payment goes into the account, and your servicer pays the bills as they come due. When taxes or insurance change, your monthly payment changes too.

F

FHA mortgage insurance premium (MIP)

FHA MIP is the mortgage insurance premium HUD charges on every FHA loan. It has two parts: an upfront premium, usually added to the loan amount, and an annual premium paid in your monthly payment. Depending on your down payment, the annual premium lasts eleven years or for as long as you keep the loan.

H

HECM reverse mortgage

A Home Equity Conversion Mortgage, or HECM, is the FHA-insured reverse mortgage for homeowners 62 and older. It turns part of your home equity into cash without a monthly mortgage payment. Interest and fees are added to the balance each month, and the loan is repaid when you no longer live in the home.

J

Jumbo loan

A jumbo loan is a mortgage larger than the conforming loan limit for the county where the home sits. Because Fannie Mae and Freddie Mac cannot buy it, each lender or investor writes its own rules for credit, down payment, reserves, and pricing. Those rules are often stricter than for a conforming loan.

L

Lender credit

A lender credit is money the lender puts toward your closing costs in exchange for a higher interest rate. It works like discount points in reverse: less cash at closing, a larger monthly payment. Credits tend to make sense when you expect to sell or refinance before the higher rate costs more than you saved.

Loan Estimate

A Loan Estimate is the standard three-page form a lender must give you within three business days of receiving your mortgage application. It shows the estimated rate, monthly payment, and closing costs, plus projected taxes and insurance and features like a prepayment penalty. Every lender uses the same layout, so you can compare offers line by line.

Loan-level price adjustment (LLPA)

A loan-level price adjustment, or LLPA, is a risk-based fee Fannie Mae charges on conventional loans it buys, based on traits such as credit score, loan-to-value, loan purpose, and occupancy. Freddie Mac charges similar fees. Lenders usually pass the cost through as a higher rate or added points, so two borrowers can see different prices on the same day.

Loan-to-value ratio (LTV)

Loan-to-value, or LTV, compares the size of your mortgage with the value of the home. Divide the loan amount by the value to get it. A bigger down payment means a lower LTV. Lenders use LTV to set your price, decide how much you can borrow, and decide whether you need mortgage insurance.

P

PITI and PITIA

PITI stands for principal, interest, taxes, and insurance, the four basic parts of a monthly mortgage payment. PITIA adds association dues, such as HOA or condo fees. Lenders use the full figure, not just principal and interest, when they check whether you can afford the loan or whether a rental's rent covers it.

Pre-approval vs. prequalification

A prequalification and a pre-approval are both letters saying a lender is generally willing to lend you up to a certain amount. Lenders use the words differently. Often a prequalification relies on what you tell the lender, while a pre-approval rests on a credit check and verified income and assets. Ask which one you have.

Private mortgage insurance (PMI)

Private mortgage insurance, or PMI, is insurance a conventional lender may require when your down payment is small. It protects the lender, not you, if the loan goes unpaid. You usually pay it monthly as part of the mortgage payment. Unlike FHA mortgage insurance, PMI can be canceled once you build enough equity.

R

Rate lock

A rate lock is a lender's promise to hold your interest rate and points for a set number of days while your loan is processed. If you close within that window and nothing in your application changes, the rate stays put even if the market moves. Common lock periods run from about one to two months.

V

VA Certificate of Eligibility (COE)

A VA Certificate of Eligibility, or COE, is the document that confirms to a lender you qualify for the VA home loan benefit based on your service. The VA calls it the first step toward a VA-backed loan. You can request it online, by mail, or through your lender, who can often pull it electronically.

VA funding fee

The VA funding fee is a one-time charge that the veteran, service member, or survivor pays on most VA-backed home loans. You can pay it at closing or add it to the loan amount. VA loans carry no monthly mortgage insurance. Veterans who receive VA disability compensation, and a few other groups, do not pay the fee.

VA IRRRL (Interest Rate Reduction Refinance Loan)

A VA IRRRL, or Interest Rate Reduction Refinance Loan, replaces an existing VA-backed loan with a new VA loan, usually to lower the rate or to move from an adjustable rate to a fixed one. The VA does not require an appraisal or a credit underwriting package, and you cannot take cash out. Lenders may still add their own checks.

VA residual income

VA residual income is the money left over each month after your new house payment, income taxes, and other monthly debts are paid. The VA uses it alongside your debt-to-income ratio to judge whether you can cover everyday living costs. The minimum depends on your family size, the loan amount, and your region.