Mortgage Glossary

A mortgage term is useful only when you know what it changes in your situation. These plain-English definitions focus on the questions borrowers in California and Nevada actually ask. Use them to understand a Loan Estimate, prepare documents, and ask a sharper question before choosing a path.

A

Adjustable-Rate Mortgage (ARM)

An ARM is a mortgage whose interest rate is fixed for an initial period and can then adjust under stated caps and indexes. It may fit a borrower who understands the future-payment risk; compare the fully adjusted payment, not only the starting rate.

Annual Percentage Rate (APR)

APR is a disclosure measure that combines the interest rate with certain loan costs. It is not the same as the note rate or a promise of total borrowing cost in every situation. Compare Loan Estimates for the same scenario and term.

Amortization

Amortization is the schedule for paying principal and interest over time. Early payments on a fully amortizing loan generally contain more interest; later payments generally contain more principal.

B

Bank Statement Loan

A bank statement loan is a non-QM mortgage that may calculate self-employed income from 12 or 24 months of eligible deposits instead of tax-return income. The lender still reviews business evidence, deposit patterns, expenses, credit, assets, and savings after closing.

Basis Point

A basis point is one-hundredth of a percentage point. Twenty-five basis points equals 0.25 percentage points.

Broker

A mortgage broker helps compare lender guidelines and pricing for a borrower’s scenario. The value is matching documentation and property details to a lender that can evaluate them, not simply counting lenders.

C

Closing Disclosure

The Closing Disclosure is the final federal disclosure of loan terms, projected payments, and closing costs. Review it carefully and verify wire instructions by phone using a trusted number.

Conforming Loan

A conforming loan follows the current requirements and county loan limits used by the applicable conventional market. Limits can change; check the current limit for the property’s county.

Credit Score

A credit score is one risk factor used in eligibility and pricing. Lenders also review payment history, debts, recent inquiries, and the overall credit report.

D

Debt-to-Income Ratio (DTI)

DTI compares qualifying monthly debts with qualifying gross monthly income. The allowed ratio depends on program, credit, savings after closing, property, and the complete application.

DSCR

Debt-service coverage ratio compares a rental property’s income the lender can use with its proposed debt service. DSCR programs may help investors when property income is central to repayment analysis, subject to program rules.

Down Payment

A down payment is the buyer’s upfront contribution toward the purchase price. It is different from total cash to close, which can include closing costs, prepaid items, and savings after closing.

L

Loan-to-Value (LTV)

LTV compares the loan amount with the property value or purchase price, as applicable. Lower LTV can affect pricing, mortgage insurance, and risk review.

Loan Estimate

A Loan Estimate is a standardized disclosure of projected terms and costs issued after an application. Compare estimates for the same loan amount, property, occupancy, and lock assumptions.

P

Points

Discount points are upfront costs paid in exchange for a lower interest rate under the lender’s pricing. Calculate the break-even period and consider how long you expect to keep that loan.

Pre-approval

A pre-approval is a lender’s conditional assessment after reviewing some combination of income, assets, credit, and debts. It is not a commitment to lend; appraisal, title, property, and remaining conditions still matter.

Private Mortgage Insurance (PMI)

PMI is mortgage insurance commonly associated with certain conventional loans above a specified LTV. Cost and cancellation rules depend on the loan and applicable law.

Q

Qualified Mortgage (QM)

A Qualified Mortgage meets specified ability-to-repay and product requirements. Non-QM describes programs outside that framework; it does not mean no underwriting or no documentation.

U

Underwriting

Underwriting is the lender’s review of whether the borrower, income, assets, debts, property, and loan meet program requirements. Conditions are requests for evidence or clarification, not necessarily bad news.

W

Wire Fraud

Wire fraud is a theft risk involving fake instructions for closing funds. Never rely on emailed changes; verify instructions by calling a trusted settlement contact.