Mortgage Terminology
Mortgage terms, put in plain language.
Acronyms You’ll Hear Us Use
The shorthand of the mortgage world — each one is defined in full in the glossary below.
Acceleration clause
A provision that lets the lender demand the full remaining balance if you default on the loan — for example, by missing payments.
Additional principal payment
Paying more than your scheduled monthly amount, with the extra applied directly to principal so you pay the loan down faster and save on interest.
Adjustable-rate mortgage (ARM)
A loan whose interest rate is fixed for an initial period, then adjusts up or down on a set schedule based on a market index.
Adjustment cap
A limit on how much an ARM's rate or payment can change at each adjustment.
Adjustment date
The date an ARM's interest rate changes.
Adjustment period
The time between one ARM rate change and the next — commonly every six months or every year after the fixed period ends.
Amortization
The gradual payoff of a loan through regular payments. Early payments are mostly interest; over time, more of each payment goes to principal.
Annual percentage rate (APR)
The yearly cost of your loan including interest plus certain fees, expressed as a percentage. It's designed to make loan offers easier to compare than the interest rate alone.
Appraisal
A licensed appraiser's written, independent estimate of what a property is worth. Lenders require one to confirm the home supports the loan amount.
Appraised value
The fair market value the appraiser assigns to the property.
Asset
Anything you own with monetary value — bank accounts, retirement funds, vehicles, other real estate.
Assumability
Whether a mortgage can be taken over by a new buyer at its existing rate and terms. Some FHA and VA loans are assumable.
Automated underwriting system (AUS)
Software (like Fannie Mae's Desktop Underwriter) that gives an initial automated decision on a loan application before a human underwriter reviews the file.
Balloon mortgage
A loan with level payments for a set period, then one large lump-sum payment due at the end of the term.
Biweekly payment mortgage
A plan where you pay half your monthly payment every two weeks — 26 half-payments a year equals one extra full payment, paying the loan off sooner.
Bridge loan
A short-term loan against your current home's equity used to fund the purchase of your next home before the current one sells.
Buydown
Paying extra money upfront (often via seller credit) to lower your interest rate — either permanently or temporarily. See also Temporary buydown.
Cash to close
The total amount you bring to closing: down payment plus closing costs, minus earnest money and any credits already paid.
Cash-out refinance
Replacing your current mortgage with a larger one and taking the difference in cash — a way to tap home equity.
Certificate of Eligibility (COE)
The VA document confirming a Veteran or service member's eligibility for a VA loan. We can usually pull it for you in minutes.
Clear to close (CTC)
The milestone every buyer wants to hear: underwriting has approved everything and the loan is ready to sign. Closing gets scheduled from here.
Closing
The final step — documents are signed, funds are transferred, and ownership of the home officially changes hands.
Closing costs
The fees and expenses due at closing beyond your down payment: lender fees, title charges, taxes, insurance, and prepaid escrow items.
Closing Disclosure (CD)
The final, official statement of your loan terms and closing costs. By law you receive it at least three business days before closing so you can review everything.
Collateral
The property that secures the loan. If the borrower defaults, the lender can claim it.
Conditional approval
Underwriting has approved your loan pending a short list of items — an updated pay stub, a letter of explanation. Clearing those conditions leads to clear to close.
Conventional loan
A mortgage not backed by a government agency (FHA, VA, USDA). Typically follows Fannie Mae/Freddie Mac guidelines; available with as little as 3% down.
Co-signer
Someone who signs the loan and shares responsibility for repayment without necessarily having ownership of the home.
Credit report
A detailed record of your credit history — accounts, balances, and payment record — that lenders review during qualification.
Credit score
A number (typically the FICO® score, 300–850) summarizing your credit risk. Higher scores generally mean better rates and more loan options.
Debt-to-income ratio (DTI)
Your total monthly debt payments (including the new mortgage) divided by your gross monthly income. One of the main numbers underwriting looks at.
Deed of trust
The document used in Texas (instead of a traditional mortgage) that pledges the property as security for the loan, held by a trustee.
Default
Failing to meet the terms of the loan — most commonly, missing payments.
Delinquency
Being behind on payments. Delinquency can lead to default if not resolved.
Discount points
An upfront fee (1 point = 1% of the loan amount) paid at closing to buy a lower interest rate. Whether points make sense depends on how long you'll keep the loan.
Down payment
The cash you put toward the purchase price — the difference between the price and the loan amount.
Down payment assistance (DPA)
Programs (many available in Texas) that provide grants or second loans to help cover your down payment and closing costs. Ask us what you may qualify for.
Earnest money (EMD)
The deposit you make when your offer is accepted, showing the seller you're serious. In Texas it's held by the title company and credited to you at closing.
Equity
The difference between what your home is worth and what you owe on it. It grows as you pay down the loan and as the home's value rises.
Escrow
Funds or documents held by a neutral third party until conditions are met — in Texas, the title company handles escrow for your purchase.
Escrow account
The account your servicer maintains alongside your loan, collecting a portion of each payment to pay property taxes and homeowners insurance when they come due.
Fannie Mae
A government-sponsored enterprise that buys conventional loans from lenders, setting many of the guidelines conventional loans follow.
FHA loan
A mortgage insured by the Federal Housing Administration. Popular with first-time buyers for its 3.5% minimum down payment and flexible credit requirements.
FICO® score
The most widely used credit score in mortgage lending, ranging from 300 to 850.
First-time homebuyer
Generally, anyone who hasn't owned a home in the past three years — which may qualify you for special programs and assistance even if you've owned before.
Fixed-rate mortgage
A loan whose interest rate — and principal & interest payment — never changes for the life of the loan.
Flood insurance
Separate coverage required when a home sits in a FEMA-designated flood zone. Standard homeowners insurance does not cover flooding.
Freddie Mac
A government-sponsored enterprise that, like Fannie Mae, buys and securitizes conventional home loans.
Gift funds
Money given by a family member (or other allowed donor) toward your down payment or closing costs. Requires a simple gift letter — we'll provide the template.
Ginnie Mae
The government corporation that guarantees securities backed by FHA, VA, and USDA loans.
Gross monthly income
Your income before taxes and deductions — the figure used in qualifying ratios like DTI.
Home equity
The portion of your home you truly own: appraised value minus your remaining loan balance.
Homeowners association (HOA)
The organization that governs some neighborhoods and condos, charging dues that count toward your qualifying housing payment.
Homeowners insurance (HOI)
The policy covering your home against fire, storms, theft, and liability. Lenders require it, and in Texas it's a meaningful part of your monthly payment.
Homestead exemptionTexas
A Texas property-tax break on your primary residence that lowers the taxable value of your home. File it with your county appraisal district after you move in — it's free.
Housing expense ratio
The percentage of gross monthly income going to your housing payment (PITI). Sometimes called the front-end ratio.
HUD
The U.S. Department of Housing and Urban Development, which oversees FHA and federal housing policy.
Index
The public benchmark rate (such as SOFR) that an ARM's rate is tied to when it adjusts.
Initial interest rate
The starting rate on an ARM during its fixed period — often lower than comparable fixed-rate loans.
Interest
The cost of borrowing money, paid to the lender as part of each payment.
Interest rate
The percentage the lender charges annually on your loan balance. Not the same as APR, which also includes certain fees.
Interest rate cap
The limit on how much an ARM's rate can rise — per adjustment and over the life of the loan.
Interest-only mortgage
A loan option where you pay only interest for an initial period. Payments are lower at first, but you build no equity from principal during that time.
Jumbo loan
A mortgage larger than the conforming loan limits set for Fannie Mae and Freddie Mac. Slightly different qualifying rules apply.
Late charge
The penalty added when a payment is made after the grace period — typically 15 days on most mortgages.
Liabilities
Your financial obligations: car loans, student loans, credit cards, child support — everything counted in your DTI.
Liquid assets
Cash or assets easily converted to cash, like checking, savings, and money market accounts.
Loan Estimate (LE)
The standardized three-page disclosure you receive within three business days of applying, showing your estimated rate, payment, and closing costs. Use it to compare lenders apples-to-apples.
Loan officer
Your licensed guide through the loan — the person who helps you pick a program, structures your file, and quarterbacks it to closing.
Loan-to-value ratio (LTV)
The loan amount divided by the home's value. An $80,000 loan on a $100,000 home is 80% LTV. Lower LTV generally means better pricing and no PMI.
Margin
The fixed percentage added to the index to set an ARM's rate at each adjustment.
Maturity
The date the loan is scheduled to be fully paid off.
Mortgage
The loan — and the legal document — that pledges your home as security for the money borrowed. In Texas, this takes the form of a deed of trust.
Mortgage banker
A lender that funds loans with its own money, then typically sells them on the secondary market.
Mortgage broker
A company that shops your loan among multiple wholesale lenders to find competitive terms, rather than lending its own money.
Mortgage insurance
Coverage that protects the lender if a borrower defaults, allowing loans with less than 20% down. See PMI (conventional) and MIP (FHA).
Mortgage insurance premium (MIP)
FHA's version of mortgage insurance: an upfront premium plus a monthly amount. Unlike PMI, it usually lasts the life of the loan unless you refinance.
Negative amortization
When payments don't cover the interest due, and the shortfall is added to your balance — the loan grows instead of shrinking. Rare today, and worth avoiding.
Net worth
The value of everything you own minus everything you owe.
Note
The document you sign promising to repay the loan at a stated rate and term.
Option periodTexas
In a Texas purchase contract, the negotiated window (often 5–10 days) during which you can terminate for any reason — your time to inspect the home.
Option feeTexas
The fee paid to the seller for the option period. Under current TREC contracts it's delivered with the earnest money to the title company and credited to you at closing.
Origination fee
The lender's fee for processing and underwriting your loan, shown on your Loan Estimate.
Owner financing
When the seller provides some or all of the financing rather than a traditional lender. Also called seller carry-back.
PITI
Principal, Interest, Taxes, and Insurance — the four parts of a full monthly payment. Add HOA dues where applicable.
Pre-approval
A written statement that we've reviewed your credit, income, and assets and are prepared to lend up to a specific amount. Stronger than a pre-qualification — and what listing agents want to see.
Pre-qualification
An informal estimate of what you might qualify for, based on stated information. A useful first step, but not a substitute for pre-approval.
Prepayment penalty
A fee some loans charge for paying off early. Most standard loans we originate have none — but always check your Loan Estimate.
Prime rate
The rate banks charge their best customers, often used as a base for HELOCs and other consumer credit.
Principal
The amount you borrowed, or the amount still owed — not counting interest.
Private mortgage insurance (PMI)
Mortgage insurance on conventional loans with less than 20% down. Unlike FHA's MIP, PMI can be removed once you reach enough equity.
Qualifying ratios
The calculations — housing expense ratio and DTI — used to determine whether you qualify for a given loan amount.
Rate lock
Our written commitment to hold your interest rate and points for a set period (typically 30–60 days) while your loan closes, protecting you if rates rise.
Rate-and-term refinance
Refinancing to change your rate or loan term without taking cash out — usually to lower the payment or shorten the payoff.
REALTOR®
A licensed real estate agent who is an active member of the National Association of REALTORS®.
Recording
The official filing of your deed and deed of trust with the county clerk, making the transfer part of the public record.
Refinance
Replacing your current mortgage with a new one on the same property — to lower the rate, change the term, remove MI, or take cash out.
Reserves
Cash left over after closing, measured in months of your full payment (PITI). Some loan programs require a minimum amount.
RESPA
The federal Real Estate Settlement Procedures Act, requiring upfront disclosure of settlement costs and governing how closings are handled.
Secondary mortgage market
Where lenders sell closed loans to investors like Fannie Mae and Freddie Mac — the reason your servicer may change after closing (your terms never do).
Seller concessions
Closing costs the seller agrees to pay on your behalf, negotiated in the contract. Each loan type caps how much a seller can contribute.
Servicer
The company that collects your payments, manages your escrow account, and handles the loan after closing. Servicing can transfer, but your rate and terms cannot change.
SOFR
The Secured Overnight Financing Rate — the benchmark index most new ARMs are tied to.
SurveyTexas
A drawing of the property's boundaries, improvements, and easements. Texas contracts address whether the seller's existing survey can be used or a new one is needed.
Temporary buydown
A seller- or lender-funded credit that lowers your effective rate for the first year or two (e.g. a 2-1 buydown: 2% lower year one, 1% lower year two, then the note rate).
Term
The length of the loan — most commonly 30 or 15 years.
Title
Your legal ownership of the property. The title company searches the public record to confirm the seller can convey it free of undisclosed claims.
Title insuranceTexas
A one-time-premium policy protecting against defects in title — unknown liens, errors in the record. In Texas, the owner's policy is customarily paid by the seller.
Truth in Lending Act (TILA)
The federal law requiring lenders to disclose loan terms and APR clearly, so borrowers can compare offers.
Underwriting
The process of verifying your credit, income, assets, and the property to approve the loan. The underwriter is the person who signs off.
USDA loan
A zero-down loan guaranteed by the U.S. Department of Agriculture for homes in eligible rural and outer-suburban areas — more of Texas qualifies than you'd think.
VA loan
A zero-down mortgage guaranteed by the Department of Veterans Affairs for eligible Veterans, service members, and surviving spouses — no monthly mortgage insurance, competitive rates.
Variable rate
An interest rate that changes over time with an index. See Adjustable-rate mortgage.
Verification of employment (VOE)
The lender's confirmation of your job and income with your employer — done at application and again just before closing.
Warranty deedTexas
The document by which the seller conveys title to you at closing, warranting that the title is good. The standard conveyance deed in Texas.
Wire fraud
A real risk at closing: criminals send fake wiring instructions by email. Always confirm wire instructions by phone with your title company using a number you've verified — never trust instructions from an email alone.
Zero-point / zero-fee loan
A loan with no upfront points or lender fees, offset by a somewhat higher interest rate. Sometimes the right trade — especially if you may refinance soon.
No matching terms
Try a different keyword, or reach out — we’re happy to explain anything in plain language.
We Speak Plain Language
If a term on your Loan Estimate or contract doesn’t make sense, don’t guess — ask. Walking you through the fine print is part of the job.
This glossary is for general education only and isn’t a loan commitment or legal advice. Terms and program details vary by loan type and are subject to change.