MORTGAGE GLOSSARY

Mortgage Terms Defined

APR, escrow, points, LTV, DTI and more: plain-English definitions of the mortgage terms you'll see on your Loan Estimate, Closing Disclosure and Texas purchase contract.

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Mortgage glossary

Common mortgage terms, explained

The words you'll see on your Loan Estimate, Closing Disclosure and Texas purchase contract, in plain English. 59 terms.

A

Adjustable-rate mortgage (ARM)
A mortgage whose interest rate is fixed for an initial period, such as 5, 7 or 10 years, and then adjusts at set intervals based on a market index plus a margin, within limits called caps.
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Amortization
Paying off a loan through regular scheduled payments of principal and interest over the loan term. Early payments go mostly toward interest; later payments go mostly toward principal.
Annual percentage rate (APR)
The yearly cost of credit over the loan term, including the interest rate and certain fees. Because it includes fees, the APR is usually higher than the interest rate and helps you compare loan offers.
Appraisal
An estimate of a property's market value by a licensed or certified appraiser, based on its condition and recent sales of comparable homes. Lenders use it to confirm the home supports the loan amount.

B

Beneficiary
The party that benefits from a deed of trust, usually the lender, which holds the security interest in the property until the loan is repaid.

C

Cash-out refinance
A refinance for more than you currently owe, paying off the old loan and giving you the difference in cash. In Texas, cash-out loans on a homestead follow Section 50(a)(6) rules, including an 80% combined loan-to-value limit.
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Close of escrow
The point when the transaction is completed: documents are signed and recorded, funds are disbursed and the buyer becomes the legal owner.
Closing costs
Fees and charges paid at closing on top of the down payment, such as lender and broker fees, appraisal, title insurance, recording fees and prepaid taxes and insurance. Your Loan Estimate lists them.
Closing Disclosure (CD)
A five-page form with the final terms and costs of your mortgage. You must receive it at least three business days before you close, so you can compare it with your Loan Estimate.
Comparable sales (comps)
Recent sales of similar nearby properties that an appraiser uses to estimate a home's value.
Conforming loan
A conventional loan that meets Fannie Mae and Freddie Mac guidelines and is at or below the conforming loan limit, which FHFA sets each year.
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Consummation
The moment you become contractually obligated on the loan, usually when you sign the loan documents. It is not always the same day as close of escrow or settlement.
Conventional loan
A mortgage not insured or guaranteed by a government agency. Qualified buyers may put as little as 3% down; private mortgage insurance is usually required with less than 20% down.
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Credit score
A number based on your credit history that lenders use to judge risk. Loan programs set minimum scores, and higher scores can mean better pricing.
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D

Debt-to-income ratio (DTI)
Your total monthly debt payments, including the new housing payment, divided by your gross monthly income. Lenders use it to judge whether the payment is affordable.
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Deed of trust
The document used in Texas and many other states that pledges the property as security for the loan. A neutral trustee holds legal title for the lender until the loan is paid off.
Deed restrictions
Limits written into a property's deed or subdivision records on how it may be used, such as building size, fences or rentals.
Disbursement date
The date loan funds are paid out to the seller, to pay off an existing loan or to other parties in the transaction.
Discount points
Optional fees paid at closing to lower your interest rate. One point equals 1% of the loan amount.
Down payment
The part of the purchase price you pay up front rather than borrow. Minimums depend on the loan program, and down payment assistance may help eligible buyers.
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Down payment assistance (DPA)
Grants or second loans from state, local or nonprofit programs that help eligible buyers with the down payment or closing costs. Terms, income limits and availability are set by each program.
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E

Earnest money deposit
A good-faith deposit the buyer makes when an offer is accepted. It is usually applied toward the down payment or closing costs at closing.
Easement
A right for someone else to use part of a property for a specific purpose, such as a utility line or shared driveway.
Endorsement
An addition to a title insurance policy that changes or expands its coverage.
Escrow account
An account your loan servicer uses to collect part of each monthly payment and pay your property taxes and homeowners insurance when they are due. Also called an impound account.
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F

FHA loan
A mortgage insured by the Federal Housing Administration. Borrowers with a 580+ credit score may put as little as 3.5% down; FHA mortgage insurance premiums (MIP) apply.
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Fixed-rate mortgage
A mortgage whose interest rate stays the same for the life of the loan, so principal and interest payments don't change.
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H

Hazard insurance
Homeowners insurance that covers damage to the property from risks such as fire and storms. Lenders require it; flood insurance may be required separately in flood zones.
HELOC
A home equity line of credit: a revolving line secured by your home. In Texas, home equity lending follows constitutional rules, including an 80% combined loan-to-value limit.
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Homestead
Your primary residence. In Texas, homesteads have special protections, including rules on home equity loans and a property tax homestead exemption you can apply for.

I

Impounds
Another name for the escrow account the servicer uses to pay property taxes and insurance on your behalf.
Interest rate
The cost of borrowing the loan amount, as a yearly percentage. It does not include fees; the APR does.

J

Jumbo loan
A mortgage above the conforming loan limit. Jumbo loans usually have stricter credit, reserve and down payment requirements.
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L

Lien
A legal claim against a property as security for a debt, such as a mortgage, tax or judgment lien.
Loan Estimate (LE)
A three-page form showing a loan's estimated rate, payment and closing costs. A lender must provide it within three business days of receiving your application, so you can compare offers.
Loan officer (MLO)
A licensed mortgage loan originator who takes your application and helps you choose a loan. You can verify a loan officer's license on NMLS Consumer Access.
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Loan-to-value ratio (LTV)
The loan amount divided by the property's appraised value or purchase price, whichever is lower. A lower LTV means more equity.

M

Mortgage
A loan used to buy or refinance real estate, secured by the property. In Texas the security instrument is usually a deed of trust.
Mortgage broker
A licensed company that compares loan programs from multiple wholesale lenders and helps you apply. The lender, not the broker, makes the final credit decision and funds the loan. HomyLoan, LLC is a mortgage broker.
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Mortgage insurance (PMI and MIP)
Insurance that protects the lender if a borrower defaults. Conventional loans use private mortgage insurance (PMI), which can be removed once you have enough equity; FHA loans use mortgage insurance premiums (MIP).
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N

NMLS
The Nationwide Multistate Licensing System, the official registry for mortgage companies and loan officers. Anyone can check a license on NMLS Consumer Access.

O

Option period (Texas)
In many Texas purchase contracts, a short period after the contract is signed, bought with an option fee, when the buyer can cancel for any reason. Its length is set in the contract.
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P

PITI
Principal, interest, taxes and insurance: the four main parts of a typical monthly mortgage payment. HOA dues and mortgage insurance may be added on top.
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Power of attorney
A legal document that lets one person act for another. Lenders and title companies have rules about when it can be used to sign loan documents.
Pre-approval
A lender's conditional review of your income, assets and credit that estimates how much you may be able to borrow. It is subject to final underwriting, the appraisal and the property.
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Pre-qualification
A quick estimate of what you may be able to borrow, usually based on information you provide, before documents are verified.
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Principal
The amount you borrowed and still owe, not counting interest.

R

Rate lock
A lender's commitment to hold an interest rate and points for a set period while your loan is processed. Locks expire, and extensions may cost extra.
Recording
Filing the deed, deed of trust and other documents with the county clerk so they become part of the public record.
Refinance
Replacing your current mortgage with a new one, for example to change the rate or term, remove mortgage insurance or take cash out.
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Reverse mortgage (HECM)
A loan for homeowners 62 and older that turns home equity into funds without monthly mortgage payments. You must live in the home, complete HUD-approved counseling and keep paying taxes, insurance and upkeep.
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S

Settlement statement
A complete breakdown of the money paid and received by the buyer and seller at closing.

T

Title insurance
Insurance that protects the lender (lender's policy) and, if purchased, the owner (owner's policy) against covered problems with the property's title.
TRID
The TILA-RESPA Integrated Disclosure rule, the federal rule that created the Loan Estimate and Closing Disclosure and their timing requirements.

U

Underwriting
The lender's review of your income, assets, credit, appraisal and documents to decide whether to approve the loan and on what conditions.
USDA loan
A mortgage guaranteed by USDA Rural Development for eligible homes in eligible rural and some suburban areas, usually with no down payment. Household income limits and guarantee fees apply.
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V

VA funding fee
A one-time fee on most VA loans that helps fund the program. Some borrowers, such as veterans receiving VA disability compensation, are exempt.
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VA loan
A mortgage guaranteed by the Department of Veterans Affairs for eligible veterans, service members and certain surviving spouses, usually with no down payment and no monthly mortgage insurance.
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Definitions are general information, not legal or financial advice. Requirements vary by loan program and lender. HomyLoan, LLC is a licensed mortgage broker, not a lender, Company NMLS 2783307. Equal Housing Opportunity.

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HomyLoan, LLC is a licensed mortgage broker, not a lender, Company NMLS 2783307. Equal Housing Opportunity.

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