Common Mortgage Terms Explained Clearly
At Manos Mortgage, our goal is to make the mortgage process easier to understand. Use this glossary as a simple guide to common mortgage terms you may hear when buying a home, comparing loan options, reviewing documents, or preparing for closing.
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Adjustable-Rate Mortgage, or ARM
Amortization
Amortization Schedule
An adjustable-rate mortgage is a home loan where the interest rate can change over time. Usually, the loan starts with a fixed rate for a certain period, then adjusts based on market conditions.
Amortization refers to the systematic method of clearing your debt through consistent monthly installments. Over the life of your loan, these payments are structured to cover both the decreasing principal amount and the accrued interest.
An amortization schedule is a breakdown showing how each mortgage payment is applied over the life of the loan. It shows how much goes toward principal, how much goes toward interest, and how the loan balance decreases over time.
Annual Percentage Rate, or APR
APR stands for Annual Percentage Rate. It represents the yearly cost of borrowing money, including the interest rate and certain loan-related costs. APR can help borrowers compare different mortgage offers.
Appraisal
Appraisal Gap
An appraisal is a professional estimate of a home’s value. Lenders usually require an appraisal to make sure the property is worth enough to support the loan amount.
An appraisal gap happens when the home’s appraised value is lower than the purchase price. This can affect the loan amount and may require renegotiation, additional funds from the buyer, or changes to the purchase contract.
Buydown
Cash To Close
Clear To Close
A buydown is when money is paid upfront to reduce the interest rate on a mortgage. A buydown may lower the rate temporarily or permanently, depending on the loan structure.
Cash to close is the total amount of money a buyer needs to bring to closing. It usually includes the down payment, closing costs, prepaid items, and escrow deposits, minus any credits or deposits already paid.
Clear to close means the lender has completed the major underwriting review and the loan is ready for final closing documents.
Closing Costs
Closing Disclosure
Co-Borrower
Closing costs are the fees and expenses paid at the end of the home-buying process. These may include lender fees, title fees, appraisal fees, escrow fees, taxes, insurance, and other settlement charges.
A Closing Disclosure is the final document that shows the actual terms and costs of your mortgage before closing. It includes the final loan amount, interest rate, monthly payment, closing costs, and cash to close.
A co-borrower is another person who applies for the mortgage with you and shares responsibility for repaying the loan. A co-borrower may also have ownership interest in the property.
Co-Signer
A co-signer is someone who helps strengthen the mortgage application by taking responsibility for the loan if the borrower does not repay it. Depending on the loan and title structure, a co-signer may or may not have ownership interest in the property.
Conditional Approval
Contingency
Conventional Loan
Conditional approval means the lender has reviewed the loan file and is willing to approve the mortgage once certain remaining items or documents are provided.
A contingency is a condition in the purchase contract that must be met for the transaction to move forward. Common examples include mortgage, appraisal, inspection, and home sale contingencies.
A conventional loan is a mortgage that is not insured or guaranteed by a government agency. It is one of the most common types of home loans
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Want To Understand What These Terms Mean for You?
Mortgage terms are helpful to know, but your personal situation matters most. If you are buying a home, refinancing, comparing loan options, or reviewing mortgage numbers, Manos Mortgage can help you understand what applies to your goals, budget, credit, income, and help you with your next step.
Debt-to-Income Ratio, or DTI
Discount Points
Down Payment
Debt-to-income ratio, or DTI, compares your monthly debt payments to your gross monthly income. Lenders use this number to help determine how much mortgage payment you may be able to afford.
Discount points are upfront fees paid at closing to lower the interest rate on a mortgage. This is often called buying down the rate.
A down payment is the amount of money a buyer pays upfront toward the purchase price of the home. The rest is usually financed through the mortgage.
Earnest Money Deposit
An earnest money deposit is money a buyer puts down after an offer is accepted to show the seller they are serious about purchasing the home. It is usually applied toward the buyer’s cash to close.
Escrow
Escrow Account
Escrow is an arrangement where a neutral third party holds funds until certain conditions are met. In a mortgage, escrow often refers to an account used to collect and pay property taxes and homeowners insurance.
An escrow account is an account used by the lender or loan servicer to collect and pay property taxes and homeowners insurance on behalf of the homeowner.
Fannie Mae
FHA Loan
Final Walkthrough
Fannie Mae, also known as the Federal National Mortgage Association, is a government-sponsored enterprise that helps support the mortgage market by buying and backing certain home loans.
An FHA loan is a mortgage insured by the Federal Housing Administration. It is often used by first-time buyers because it may allow lower down payments and more flexible credit requirements.
A final walkthrough is the buyer’s last chance to inspect the property before closing. It helps confirm the home is in the expected condition and that agreed-upon repairs or changes have been completed.
Fixed-Rate Mortgage
Freddie Mac
Gift Funds
A fixed-rate mortgage is a home loan where the interest rate stays the same for the entire loan term. This means the principal and interest portion of the payment does not change.
Freddie Mac, also known as the Federal Home Loan Mortgage Corporation, is a government-sponsored enterprise that helps provide liquidity to the mortgage market by purchasing and supporting certain home loans.
Gift funds are money given to a buyer by an eligible donor, often a family member, to help with the down payment or closing costs. Lenders usually require a gift letter to document that the money is a gift and not a loan.
Home Equity
Home equity is the difference between what your home is worth and how much you owe on the mortgage.
Home Inspection
Homeowners Association, or HOA, Dues
Homeowners Insurance
A home inspection is a professional review of the property’s condition. It is different from an appraisal and is usually done to help the buyer understand potential repairs or issues before closing.
HOA dues are fees paid to a homeowners association if the property is part of a community with shared rules, amenities, or maintenance responsibilities.
Homeowners insurance protects the home and certain personal belongings from covered losses. Lenders usually require homeowners insurance before closing
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Know What to Do Before Closing
Understanding mortgage terms is only one part of the process. Knowing what to do and what to avoid - before closing - can help prevent delays, protect your approval, and keep your mortgage process on track.
Review the Mortgage Do’s and Don’ts to learn which financial moves to avoid during the home-buying process.
Loan Estimate
Loan-to-Value Ratio, or LTV
Mortgage Insurance
A Loan Estimate is a document that shows important details about a mortgage offer, including the estimated interest rate, monthly payment, closing costs, and cash to close.
Loan-to-value ratio, or LTV, compares the loan amount to the value or purchase price of the property. For example, if you borrow $300,000 on a $400,000 home, your LTV is 75%.
Mortgage insurance protects the lender if the borrower does not repay the loan. It may be required when the down payment is below a certain amount or when using certain loan programs.
Mortgage Payoff Statement
A mortgage payoff statement is a document from the lender that shows the exact amount needed to fully pay off a mortgage by a specific date.
Occupancy
Origination Fee
Occupancy refers to how the property will be used, such as a primary residence, second home, or investment property. Occupancy can affect loan options, interest rates, and mortgage requirements.
An origination fee is a fee charged by a lender or broker for processing, arranging, or originating the mortgage loan
Points
Pre-Approval
Pre-Qualification
Points are upfront fees paid to the lender. Discount points may lower the interest rate, while origination points may be lender charges for making the loan.
A pre-approval is a lender’s conditional review of your mortgage qualifications. It is usually based on your credit, income, assets, debts, and other financial information. A pre-approval can help you understand your buying power before shopping for a home.
A pre-qualification is an early estimate of how much a borrower may be able to afford. It is usually based on basic information provided by the borrower and is less detailed than a full pre-approval.
Principal, Interest, Taxes, and Insurance, or PITI
Private Mortgage Insurance, or PMI
Property Taxes
PITI stands for Principal, Interest, Taxes, and Insurance. These are the main parts of a typical monthly mortgage payment.
Private mortgage insurance, or PMI, is insurance that may be required on a conventional loan when the borrower puts less than 20% down. PMI protects the lender if the borrower defaults on the loan.
Property taxes are taxes charged by the local government based on the value of the home. They are often included in the monthly mortgage payment through an escrow account.
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Have a Question About a Term You Don’t See Here?
Mortgage language can be confusing, and not every term may be listed in this glossary. Ask the Manos Mortgage Assistant for instant explanations of mortgage terms, loan documents, closing costs, pre-approval questions, refinance terms, and anything else you want clarified while exploring your options.
Rate Lock
Refinance
Reserves
A rate lock means your lender agrees to hold a specific interest rate for a set period of time, as long as the loan closes within that time and there are no major changes to your loan details.
A refinance replaces an existing mortgage with a new one. Homeowners may refinance to change the interest rate, loan term, monthly payment, loan type, or to access home equity.
Reserves are extra funds left over after closing. Some loan programs or situations require borrowers to have a certain number of months of mortgage payments available in savings or other eligible accounts.
Seller Credit
A seller credit is money the seller agrees to contribute toward the buyer’s closing costs or prepaid expenses. This can help reduce the amount of money the buyer needs at closing.
Servicing
Title
Servicing refers to the company that collects your mortgage payments after closing. The company that services your loan may be different from the company that originally provided the mortgage.
Title refers to legal ownership of the property. Before closing, a title company usually checks that the seller has the legal right to transfer ownership and that there are no major ownership issues.
Title Insurance
Underwriting
USDA Loan
Title insurance protects against certain ownership issues, title defects, liens, or past claims against the property. Lenders usually require lender’s title insurance, and buyers may also choose owner’s title insurance.
Underwriting is the mortgage review process where the lender verifies your income, assets, credit, employment, debts, and property details to determine whether the loan can be approved.
A USDA loan is a mortgage option for eligible buyers purchasing in qualifying rural or suburban areas. Some USDA loans may allow no down payment, subject to income, property, and program requirements.
VA Loan
A VA loan is a mortgage option for eligible veterans, active-duty service members, and certain surviving spouses. VA loans may allow eligible borrowers to buy a home with no down payment.
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Explore More Mortgage Resources
Continue learning with helpful mortgage resources from Manos Mortgage. Whether you are preparing to buy your first home, comparing loan options, reviewing mortgage terms, or trying to avoid common mistakes before closing, the guides in our Mortgage Hub can help you move forward with more clarity.