Mortgage Glossary
Every Term You Will Actually Hear Buying a Home
You are about to hear a lot of words that nobody stops to define until you are already mid conversation. Here are the 36 that come up the most, from your first call with me to the day you get the keys, explained the way I would explain them to a friend, not the way a textbook would.
Before You Apply
- Credit score (FICO)
- Your credit score is a three digit number, usually 300 to 850, that tells a lender how reliably you have repaid debt in the past. Mortgage lenders pull all three bureaus and use the middle score, not the average, so paying off one small card will not always move the number you get scored on.
- Debt-to-income ratio (DTI)
- DTI is the percentage of your monthly gross income that goes toward debt payments, including your new mortgage. Most loan programs cap it between 43 and 50 percent, and the number that matters is the one after your new payment is added, not before.
- Pre-qualification
- A pre-qualification is a quick estimate of what you might be able to borrow, based on numbers you report yourself with no documents pulled. It is a starting point for a conversation, not something a seller will take seriously on an offer.
- Pre-approval
- A pre-approval means a lender has actually verified your income, assets, and credit and is telling you a real number you can act on. This is the one you need in hand before you write an offer, not the pre-qualification.
- Down payment
- Your down payment is the portion of the purchase price you pay in cash instead of borrowing. It can start as low as 3 percent on a conventional loan or 3.5 percent on FHA, and it is not the same thing as closing costs, which are separate. Learn more about Down payment
- Reserves
- Reserves are the money left in your accounts after closing, measured in months of your future payment. Lenders want to see it sitting there as proof you can cover a rough month, not because you are required to spend it.
- Down payment assistance
- Down payment assistance is money, usually a grant or a second, forgivable loan, that helps cover your down payment or closing costs. Programs vary by county and change often, so the real question is never whether it exists, it is whether you personally qualify for one right now. Learn more about Down payment assistance
Loan Programs
- Conventional loan
- A conventional loan is a mortgage that is not backed by a government agency, typically following Fannie Mae or Freddie Mac guidelines. It is the most common loan type and usually the cheapest option once your credit and down payment are solid. Learn more about Conventional loan
- FHA loan
- An FHA loan is backed by the Federal Housing Administration and built for buyers with lower credit scores or a smaller down payment, as low as 3.5 percent. The tradeoff is mortgage insurance that usually sticks around for the life of the loan. Learn more about FHA loan
- Jumbo loan
- A jumbo loan is any mortgage larger than the conforming loan limit set each year for your county, which pushes it outside standard Fannie Mae and Freddie Mac pricing. Guidelines get stricter and pricing spreads between lenders get wider, so shopping it matters more here than anywhere else. Learn more about Jumbo loan
- Non-QM loan
- Non-QM stands for non-qualified mortgage, meaning the loan is underwritten outside the standard federal guidelines most mortgages follow. It exists for real borrowers whose income does not fit a normal box, not for bad credit. Learn more about Non-QM loan
- DSCR loan
- DSCR stands for debt service coverage ratio. A DSCR loan qualifies an investment property using its own rental income instead of your personal income, your tax return never enters the conversation, the property has to carry itself. Learn more about DSCR loan
- Bank statement loan
- A bank statement loan qualifies self-employed borrowers using deposits shown on bank statements instead of tax returns. It exists because write offs that lower your tax bill also lower the income a normal underwriter sees. Learn more about Bank statement loan
Rates and Payments
- Interest rate vs. APR
- Your interest rate is the cost of borrowing the loan amount itself. Your APR wraps that rate together with lender fees and mortgage insurance into one number, which is why the APR on your paperwork is almost always slightly higher than the rate you were quoted. Learn more about Interest rate vs. APR
- Discount points
- A discount point is an upfront fee, one percent of your loan amount, that buys your interest rate down for the life of the loan. Whether it is worth paying comes down to how long you actually plan to keep the loan, and I will show you that math before you decide. Learn more about Discount points
- Rate lock
- A rate lock guarantees your interest rate for a set window, usually 30 to 60 days, while your loan moves through underwriting. Rates move daily, so locking is what protects the number you were quoted from changing before you close.
- PMI (private mortgage insurance)
- PMI protects the lender if you default, and it is typically required on a conventional loan once your down payment drops below 20 percent. It comes off automatically once you hit 22 percent equity, you do not have to ask for it, but you can. Learn more about PMI (private mortgage insurance)
- PITI
- PITI is principal, interest, taxes, and insurance, the four pieces that make up your full monthly housing payment. When I quote you a payment, this is the number I mean, not just the loan payment by itself. Learn more about PITI
- Amortization
- Amortization is the schedule that spreads your loan balance across fixed monthly payments until it hits zero. Early payments are mostly interest, and the mix shifts toward principal as the loan matures, which is why year one and year twenty feel very different. Learn more about Amortization
- 2-1 buydown
- A 2-1 buydown temporarily lowers your interest rate by 2 percent in year one and 1 percent in year two before it settles at the real note rate in year three. It is often paid for by the seller or builder, which makes it essentially a free discount on your first two years of payments. Learn more about 2-1 buydown
The Approval Process
- Loan Estimate
- A Loan Estimate is a standardized three page form a lender must send within three days of your application, laying out your rate, payment, and closing costs. Comparing lenders means comparing this document line by line, not just the rate you were quoted on the phone.
- Underwriting
- Underwriting is the process where your income, assets, credit, and the property itself get verified against the loan program's actual guidelines. This is the step that turns a pre-approval into an approved loan, and it is where a well-organized file moves fast.
- Appraisal
- An appraisal is a licensed, independent estimate of what your property is actually worth, ordered by the lender to confirm the home supports the loan amount. If it comes in under the contract price, that becomes a negotiation, not an automatic deal breaker.
- LTV (loan to value)
- LTV is your loan amount divided by the home's value, expressed as a percentage. A smaller down payment means a higher LTV, and LTV is one of the biggest levers behind your rate, your mortgage insurance, and which programs you qualify for. Learn more about LTV (loan to value)
- Conditions
- Conditions are the specific documents or clarifications an underwriter needs before your file can close, things like an updated pay stub or a letter explaining a large deposit. A fast turnaround on these is the single biggest thing that keeps a closing on schedule.
- Clear to close
- Clear to close means underwriting has signed off and every condition has been satisfied, your loan is fully approved. This is the green light that lets your closing get scheduled for real.
Closing Day
- Earnest money
- Earnest money is a deposit, usually 1 to 2 percent of the purchase price, that you pay when your offer is accepted to show you are serious. It gets credited back toward your down payment or closing costs at closing, it is not an extra cost.
- Option period
- In Texas, the option period is a negotiated window, often 7 to 10 days, where you can walk away from a contract for any reason for a small option fee, usually a few hundred dollars. It exists specifically so you have time for an inspection before you are locked in.
- Title insurance
- Title insurance protects you and your lender against a defect in the property's ownership history, an old lien or a forged signature decades back that surfaces later. You pay for it once at closing and it protects you for as long as you own the home.
- Closing Disclosure
- A Closing Disclosure is the final, legally required breakdown of your exact loan terms and closing costs, sent at least three business days before you sign. Compare it line by line against your original Loan Estimate, that is exactly what it is designed for.
- Closing costs
- Closing costs are the fees beyond your down payment needed to finalize the loan, typically 2 to 5 percent of the purchase price, covering things like the appraisal, title work, and lender fees. A seller can contribute toward these, which is one of the first things I negotiate for on your behalf.
- Escrow account
- An escrow account is where your lender collects a portion of your property taxes and homeowners insurance every month and pays those bills on your behalf when they come due. It rolls into your monthly payment so you are never hit with one large tax bill all at once.
After You Own
- Home equity
- Home equity is the portion of your home you actually own, your current market value minus what you still owe on the mortgage. It grows two ways, you paying down the balance and the home appreciating, and it is usually the single biggest asset most people ever build. Learn more about Home equity
- Cash-out refinance
- A cash-out refinance replaces your current mortgage with a new, larger one and gives you the difference in cash at closing. It is one of the cheapest ways to borrow against equity because it is secured by the home, but it does reset your loan term. Learn more about Cash-out refinance
- HELOC
- A HELOC, home equity line of credit, lets you borrow against your equity as needed, like a credit card secured by your house, instead of taking one lump sum. You only pay interest on what you actually draw, which makes it a good fit for ongoing costs like a renovation done in phases. Learn more about HELOC
- Refinance
- Refinancing means replacing your existing mortgage with a new one, usually to get a better rate, change your term, or pull out cash. Whether it makes sense comes down to real break-even math, how many months until the savings outweigh the closing costs, not just whether rates dropped. Learn more about Refinance
Jennifer Ferrara
Loan Officer · NMLS #2781982
Fourteen years navigating real estate deals taught me to listen before I recommend anything. Tell me what you're working with, and let's talk it through.
Where I Lend
Licensed throughout Texas, and I speak Spanish. Don't see your town? Ask, I am probably still in reach.
Cities I specialize in:
Kyle, TX · Buda, TX · San Marcos, TX · South Austin · Dripping Springs, TX · Driftwood, TX
See all service areasTell me what you are trying to do
Send me the situation in your own words. I will tell you honestly what it can do and what it cannot, before anybody pulls your credit.