Mortgage glossary, in plain English

A

Adjustable-rate mortgage (ARM)

A loan whose rate is fixed for a set number of years, then adjusts on a schedule tied to an index plus a margin, within caps. A 7/6 ARM is fixed for seven years, then adjusts every six months.

Amortization

How each payment splits between interest and principal over the life of the loan. Early payments are mostly interest; late payments are mostly principal.

Annual percentage rate (APR)

The cost of the loan per year including certain fees, not just the interest rate. Useful for comparing two offers for the same loan amount and term.

Appraisal

An independent opinion of the home’s market value, ordered through the lender and paid for by the buyer. The loan is based on the lower of the price or the appraised value. Read the full guide

Appraisal contingency

A contract clause that lets the buyer renegotiate or walk away if the home appraises below the price. Read the full guide

Appraisal gap

The difference between the contract price and a lower appraised value. Someone has to cover it, renegotiate it, or structure around it. Read the full guide

Assessed value

The value your city or county puts on the home for real estate tax. Your bill follows it, not your price, and around Richmond it usually runs below what homes sell for. Read the full guide

Assumable mortgage

A loan a buyer can take over from the seller, keeping the seller’s rate and balance. FHA, VA and USDA loans are generally assumable with lender approval; most conventional loans are not.

Automated underwriting (AUS)

The loan program’s software decision that reads your file and returns findings, such as Approve/Eligible or Refer. The findings set many of the documents and limits on your loan. Read the full guide

B

Balloon payment

A large lump sum due at the end of some loans. Rare on standard home loans today.

Bank statement loan

A non-QM loan for self-employed borrowers that qualifies income from 12 or 24 months of bank deposits instead of tax returns. Read the full guide

Break-even point

How many months it takes for monthly savings to repay an upfront cost, like refinance closing costs or discount points. Read the full guide

BRRRR

Buy, rehab, rent, refinance, repeat. An investing method that pulls cash back out of a renovated rental to buy the next one.

Buydown

Paying money upfront to lower the rate. A permanent buydown uses discount points. A temporary buydown (like a 2-1) lowers the payment for the first one to three years, often paid by the seller. Read the full guide

C

Cash to close

The total you bring to the closing table, after the down payment, closing costs, prepaids, credits and earnest money are added up. Read the full guide

Cash-out refinance

A new, larger first mortgage that pays off the old one and hands you the difference in cash. It replaces your current rate with a new one. Read the full guide

Certificate of Eligibility (COE)

The VA document that shows your entitlement and whether you are exempt from the funding fee. Your lender can usually pull it in minutes. Read the full guide

Clear to close (CTC)

The underwriter has signed off on every condition and the loan can move to closing documents. Until then, an approval is conditional. Read the full guide

Closing costs

The fees and taxes to make the loan and transfer the home, such as lender fees, appraisal, title insurance, settlement fees and recording taxes. Separate from your down payment. Read the full guide

Closing Disclosure (CD)

The final five-page statement of your loan terms and costs. You must receive it at least three business days before closing. Read the full guide

Co-signer

Usually a non-occupant co-borrower, someone who signs the loan, owes all of it and doesn’t live in the home. Their income and debts count with yours. Read the full guide

Combined loan-to-value (CLTV)

All the loans against a home added together, divided by its value. A $250,000 first mortgage plus a $50,000 HELOC on a $400,000 home is 75% CLTV. Read the full guide

Conditional approval

The underwriter has approved the loan subject to a list of conditions, like a final pay stub or an explanation letter. It is not final approval. Read the full guide

Conforming loan

A conventional loan at or under the conforming loan limit that meets Fannie Mae or Freddie Mac rules. Read the full guide

Conforming loan limit

The largest loan Fannie Mae and Freddie Mac will buy, set every year by their regulator. Loans above it are jumbo loans. Read the full guide

Conventional loan

A mortgage not insured or guaranteed by a government agency. Most follow Fannie Mae or Freddie Mac rules. Read the full guide

D

Debt-to-income ratio (DTI)

Your monthly debt payments, including the new house payment, divided by your gross monthly income. The main measure of whether you can afford the loan on paper. Read the full guide

Deed of trust

The document that secures your loan against the home in Virginia. A trustee holds the right to sell the home if the loan goes unpaid.

Departing residence

The home you live in now and are moving out of. If you keep it as a rental, its market rent can offset its payment when you qualify for the next one. How the rent is documented depends on the loan program. Read the full guide

Discount points

Fees paid at closing to lower your interest rate. One point equals 1% of the loan amount. Read the full guide

Down payment

The part of the purchase price you pay yourself. The loan covers the rest. Read the full guide

DSCR loan

An investor loan that qualifies on the property’s rent compared to its payment (the debt service coverage ratio) instead of your personal income. Read the full guide

E

Earnest money deposit (EMD)

Money you put down when your offer is accepted to show good faith. It counts toward your cash to close. Read the full guide

Entitlement

The amount the VA guarantees on your behalf. Full entitlement means no VA loan limit; partially used entitlement can still be enough for another VA loan. Read the full guide

Escrow account

An account your loan servicer keeps to pay property taxes and homeowners insurance for you, funded by part of each monthly payment. Read the full guide

Extenuating circumstances

A documented, one-time event outside your control, like a serious illness or a job loss, that led to a bankruptcy or foreclosure. Some programs shorten the waiting period when you can show it. Read the full guide

F

FHA loan

A loan insured by the Federal Housing Administration, with lower down payment and more flexible credit rules, paid for with mortgage insurance premiums. Read the full guide

FHA streamline refinance

A refinance of an existing FHA loan into a new FHA loan with less documentation, when it lowers your payment or improves the loan. Read the full guide

Fixed-rate mortgage

A loan whose interest rate never changes for the life of the loan.

Fixed-rate second mortgage

A lump-sum loan behind your first mortgage with a fixed rate and payment. A way to tap equity without giving up a low first-mortgage rate. Read the full guide

Float-down

A lender’s option to lower a locked rate if the market improves enough. In my experience they’re rare, so get the terms in writing before you count on one. Read the full guide

Funding

When the lender’s money reaches the settlement agent. On a Virginia purchase, signing and funding usually land together; on most refinances of the home you live in, funding waits until the three-day right to cancel ends. Your rate lock has to last through funding. Read the full guide

Funding fee

The one-time VA charge that keeps the VA loan program running, usually rolled into the loan. Veterans receiving VA compensation for a service-connected disability are exempt. Read the full guide

G

Gift funds

Money a relative or other allowed donor gives you toward the down payment or closing costs, documented with a gift letter and a paper trail. A gift is never repaid; money you have to pay back is a loan. Read the full guide

Gift of equity

When a family member sells you a home for less than it is worth and the difference counts as your down payment. It is documented like a gift. Read the full guide

Grantor tax

A Virginia tax on transferring real estate, customarily paid by the seller. Read the full guide

H

HELOC

A home equity line of credit. A revolving line secured by your home that you can draw from, pay down and draw again during the draw period. Read the full guide

Homeowners insurance

Insurance on the home’s structure and your liability. The lender requires it, and the first year is usually paid at closing.

House hacking

Living in one part of a property, or in one home while renting another, so rent covers some or all of your housing cost. Read the full guide

I

Income-driven repayment (IDR)

A federal student loan plan that sets your payment from your income, sometimes as low as $0. Each loan program has its own rule for what payment counts in your DTI. Read the full guide

Interested party contribution

The program’s name for money from someone with a stake in the sale, like the seller or builder, toward your costs. Conventional loans cap it at 3%, 6% or 9% of the lower of the price or appraised value, depending on your down payment (2% on investment property). Read the full guide

IRRRL

The VA Interest Rate Reduction Refinance Loan, or VA streamline. Refinances a VA loan into a new VA loan at a lower rate with less paperwork. Read the full guide

J

Jumbo loan

A loan above the conforming loan limit. Rules are set by each lender and are usually stricter. Read the full guide

L

Lender credit

Money the lender gives toward your closing costs in exchange for a slightly higher rate. Read the full guide

Lender margin

What a lender adds on top of the market price of a loan to cover its costs, its people and its profit. It is built into the rate and points. Not the same as an adjustable-rate loan’s margin, the fixed number added to the index. Read the full guide

Lender overlay

A lender’s own rule on top of the loan program’s rules, like a higher minimum credit score. A file that fails one lender’s overlay can still fit the program somewhere else. Read the full guide

Letter of explanation (LOE)

A short, signed letter that answers an underwriter’s question, with the real reason first and then the dates and the facts. The rest of your file has to back it up. Read the full guide

Loan Estimate (LE)

The standard three-page form a lender must send within three business days of your application, showing the rate, payment and costs. Use it to compare lenders line by line. Read the full guide

Loan-to-value (LTV)

The loan amount divided by the home’s value (the lower of price or appraisal). 95% LTV means 5% down.

M

Manual underwriting

A person underwrites the loan by hand, under stricter limits, when the automated system won’t approve it on its own. Read the full guide

Market rent

What a home would rent for, based on comparable rentals nearby, usually from the appraiser’s rent schedule. Since September 2026, Fannie Mae uses market rent, not a lease, for a home you are moving out of. Read the full guide

Mortgage broker

A licensed company that takes your application and shops it with many wholesale lenders instead of offering only one lender’s products. Its loan officers work for the brokerage. Read the full guide

Mortgage insurance (MI, PMI, MIP)

Insurance you pay for that protects the lender, not you. Conventional loans call it PMI and require it with less than 20% down; FHA calls it MIP and charges it on every loan, whatever you put down. Read the full guide

N

Non-occupant co-borrower

A person on the loan who will not live in the home, usually a parent helping a child qualify. Read the full guide

Non-QM loan

A loan outside the standard qualified mortgage rules, like bank statement, 1099, asset-based or DSCR loans. More flexible, usually priced higher. Read the full guide

O

Origination fee

A lender or broker charge for making the loan, shown on page two of the Loan Estimate.

P

Par rate

The rate at which a loan costs no points and pays no lender credit. A lower rate costs points; a higher rate pays a credit toward closing costs. Read the full guide

PITI

Principal, interest, taxes and insurance. The full monthly house payment. Add mortgage insurance and HOA dues where they apply. Read the full guide

Pre-approval

A lender’s written conditional commitment after reviewing your credit, income and asset documents. I only issue pre-approvals, never pre-qualifications. Read the full guide

Pre-qualification

An estimate based on what you say, without documents checked. It tells a seller very little. Read the full guide

Prepaids

Costs paid at closing for things that come after closing, like daily interest to the end of the month, the first year of insurance, and the escrow cushion. Read the full guide

Primary residence

The home you live in most of the year. Primary-residence loans usually get lower rates and lower down payments than loans on second homes or rentals.

Principal

The amount you borrowed and still owe, not counting interest.

Proration

The split of this year’s real estate tax between you and the seller, worked out by the settlement agent as the contract says. It shows on your Closing Disclosure as a charge or a credit. Read the full guide

R

Rate and term refinance

A refinance that changes the rate, the term, or both, without taking cash out beyond small limits. Read the full guide

Rate lock (interest rate lock)

A lender’s commitment to hold a rate and price for a set number of days while your loan closes. Read the full guide

Rate lock extension

More days added to a lock before it runs out, and they cost real money. A lock that lapses isn’t extended; it’s relocked at current pricing, which can be worse. Read the full guide

Ratified contract

A purchase contract signed by you and the seller, every addendum included, and delivered back to the other side. On a complete file, my standard is to lock with your OK, send your disclosures and order the appraisal and title within a day of it. Read the full guide

Reconsideration of value (ROV)

A formal request, with better comparable sales, asking the appraiser to review a value that came in low. Read the full guide

Recordation tax

Virginia’s tax on recording deeds and deeds of trust, charged by the state with a local share. Buyers usually pay it on both the deed and the loan. Read the full guide

Reserves

Money left in your accounts after closing, counted in months of house payments. Some loans and investment purchases require it. Read the full guide

Residual income

The money left each month after all major obligations, a test the VA uses alongside debt-to-income. Read the full guide

Retail lender

A bank, credit union or mortgage company that sells its own loans directly to you. Its loan officer is an employee, and the lender’s margin and the loan officer’s pay are built into the rate, not shown as lines on your forms. Read the full guide

S

Seller concession

Money the seller agrees to pay toward your closing costs, prepaids or a buydown. Each loan program caps it, and it can never pay your down payment. Read the full guide

Servicer

The company that collects your monthly payment after closing, runs your escrow account and handles requests like dropping PMI. Read the full guide

Settlement agent

The attorney or title company that runs your closing, from the title search and the final numbers to the signing and the recording. In Virginia you pick the settlement agent, and wiring instructions come only from them. Read the full guide

Single-premium mortgage insurance

Mortgage insurance paid in one lump sum at closing instead of monthly. It adds to your cash to close and takes the insurance line off your monthly payment. Read the full guide

T

Title insurance

Insurance against problems with ownership of the home. The lender’s policy is required; the owner’s policy protects you. Read the full guide

U

Underwriting

The review of your credit, income, assets and the property to decide whether the loan meets the program’s rules. Read the full guide

USDA loan

A zero-down loan guaranteed by the U.S. Department of Agriculture for eligible rural and suburban areas and household incomes. Read the full guide

V

VA loan

A loan guaranteed by the Department of Veterans Affairs for eligible veterans, service members and some surviving spouses, usually with no down payment and no monthly mortgage insurance. Read the full guide

W

Waiting period

Two clocks go by this name. After a bankruptcy, foreclosure or short sale, it’s the time a loan program makes you wait before a new mortgage, and it differs by program and by event. At closing, it’s the three business days between receiving your Closing Disclosure and signing. Read the full guide

Wholesale lender

A lender that makes loans through mortgage brokers instead of directly to the public. The broker brings the application; the wholesale lender underwrites and funds the loan. Read the full guide