The mortgage glossary, minus the jargon about the jargon.
49 terms that actually come up — defined the way a sharp loan officer explains them to a smart client. Deep dives linked where they exist.
Amortization
The schedule by which a loan is paid down over time through fixed payments that cover both interest and principal. Early payments are mostly interest; the principal share grows with each payment. A 30-year amortization keeps payments low, while shorter schedules build equity faster. Some loans, like interest-only mortgages, delay amortization entirely for an initial period.
Appraisal
A licensed appraiser's opinion of a property's market value, ordered by the lender to confirm the home is worth what you're paying or borrowing against. The appraised value — not the purchase price — sets the ceiling for your LTV. On investment deals, appraisers also complete a rent schedule (Form 1007) that lenders use to qualify DSCR loans.
APR vs interest rate
The interest rate is what you pay to borrow the principal; the APR (annual percentage rate) adds most lender fees, discount points, and certain closing costs, expressed as a yearly rate. APR is the better tool for comparing two loan offers with different fee structures. A loan with a lower rate but higher points can carry a higher APR — a red flag if you may sell or refinance within a few years.
ARV (After-Repair Value)
The projected market value of a property after planned renovations are complete. Fix-and-flip and bridge lenders size loans as a percentage of ARV — commonly 65–75% — rather than the as-is price. A realistic ARV, backed by comparable sales, is the single most important number in a flip deal; overestimating it is how flips lose money.
AVM (Automated Valuation Model)
A computer-generated property value estimate built from public records, recent sales, and market data — no appraiser visits the home. Lenders use AVMs for fast decisions on HELOCs and some refinances, which can cut weeks off closing. AVMs are less reliable for unique properties or heavily renovated homes, where a full appraisal usually works in your favor.
Bank statement loan
A mortgage that qualifies self-employed borrowers using 12–24 months of business or personal bank deposits instead of tax returns. Lenders apply an expense factor to gross deposits to estimate usable income, so heavy write-offs on your tax return don't sink your application. It's the workhorse product for business owners — see our guide to bank statement loans and broader self-employed mortgage requirements.
Basis point
One hundredth of one percent (0.01%). Rates and pricing adjustments are quoted in basis points, or "bps" — a rate moving from 6.50% to 6.75% rose 25 bps. Knowing the unit helps you parse lender quotes and LLPA pricing grids without ambiguity.
Bridge loan
A short-term loan — typically 6 to 24 months — that covers the gap between buying one property and selling or refinancing another. Investors use bridge loans to close fast on acquisitions or fund renovations before a long-term refinance; homebuyers use them to buy before their current home sells. Rates run higher than conventional financing, so the exit plan matters more than the rate. See fix-and-flip and bridge loans.
BRRRR
Buy, Rehab, Rent, Refinance, Repeat — an investing strategy where you buy a distressed property (often with a bridge or hard money loan), renovate it, place a tenant, then refinance into long-term debt such as a DSCR loan to pull your capital back out. Done well, you recycle the same down payment across multiple properties. Seasoning rules and the refinance appraisal are the two most common sticking points.
Cash-out refinance
Replacing your existing mortgage with a larger one and taking the difference in cash at closing. It's a common way to tap equity for renovations, debt payoff, or the next down payment. On rentals, lenders cap LTV lower and price the loan higher than on a primary home — see cash-out refinancing an investment property and how it compares to a HELOC.
Closing costs
The fees paid to complete a mortgage: lender origination, appraisal, title insurance, recording fees, and prepaid items like insurance and property taxes. Expect roughly 2–5% of the loan amount on a purchase. They're itemized on your Loan Estimate and Closing Disclosure, and some — like lender fees and points — are negotiable or can be offset with lender credits.
CLTV (Combined Loan-to-Value)
All liens on a property added together, divided by its value. If your first mortgage is $300,000 and you add a $50,000 HELOC on a $500,000 home, your CLTV is 70%. Lenders cap CLTV — not just first-lien LTV — when approving second liens, and the caps are tighter on rentals, as covered in HELOCs on investment property.
COE (Certificate of Eligibility)
The VA document proving a veteran, service member, or eligible surviving spouse qualifies for a VA loan. It shows your entitlement amount and whether you've used any of it on prior loans. Most lenders can pull it electronically in minutes through the VA portal — you rarely need to request it yourself. See VA loans with zero down.
Conforming loan
A mortgage that meets Fannie Mae and Freddie Mac's rules, including the loan-size limit the FHFA adjusts each year (higher in high-cost counties). Conforming loans generally carry the best pricing available for well-qualified borrowers. Loans above the limit are jumbo; loans that break other agency rules fall into non-QM territory.
Conventional loan
Any mortgage not insured by a government agency (FHA, VA, USDA) — most are conforming loans sold to Fannie Mae or Freddie Mac. Conventional loans allow you to drop PMI once you reach 20% equity, unlike FHA's MIP. For borrowers with strong credit, conventional usually beats FHA on total cost — see FHA vs conventional.
Debt consolidation
Using home equity — via a cash-out refinance, HELOAN, or HELOC — to pay off higher-rate debts like credit cards or personal loans. It can slash your monthly outflow and improve your DTI, but it converts unsecured debt into debt secured by your home. Compare structures in HELOC vs cash-out refi before choosing.
Delayed financing
A rule that lets you buy a property with cash, then do a cash-out refinance almost immediately — no six-month seasoning wait — to recover your capital. The refinance is generally capped at your documented purchase price plus closing costs, and the original purchase funds must be sourced (not borrowed against the property). It's a favorite tool of investors who win deals by offering cash.
Discount points
Upfront fees paid to lower your interest rate — one point costs 1% of the loan amount and typically buys the rate down 0.125–0.25%. Points make sense when you'll hold the loan past the breakeven (upfront cost divided by monthly savings), often 4–7 years. If you expect to refinance or sell sooner, take the higher rate and keep your cash.
Draw period
The initial phase of a HELOC — usually 5 to 10 years — when you can borrow, repay, and re-borrow against your credit line, often with interest-only payments. When it ends, the line freezes and you enter the repayment period, where payments jump because you're amortizing the balance over the remaining term. Plan your exit before the draw period closes, not after.
DSCR (Debt Service Coverage Ratio)
A rental property's monthly rent divided by its full housing payment (PITIA). A DSCR of 1.25 means rent covers 125% of the payment; most lenders want 1.0–1.25, though some go below 1.0 at tougher pricing. DSCR loans qualify you on the property's income alone — no tax returns, no personal DTI — which is why they dominate investor lending, including short-term rental financing.
DTI (Debt-to-Income ratio)
Your total monthly debt payments — including the proposed mortgage — divided by your gross monthly income. Conventional loans generally want DTI under 45–50%; the lower it is, the stronger your file. Self-employed borrowers whose tax returns understate income often qualify better through bank statement loans or DSCR loans that sidestep DTI entirely. Full breakdown in DTI explained.
Earnest money
A deposit — typically 1–3% of the purchase price — you put down when your offer is accepted, held in escrow to show the seller you're serious. It applies toward your down payment and closing costs at closing. You can lose it if you back out for a reason not protected by a contract contingency (inspection, financing, appraisal), so know your deadlines.
Equity
The portion of your property you actually own: market value minus all loan balances. Equity grows through amortization, appreciation, and renovations, and it's the raw material for a HELOC, HELOAN, or cash-out refinance. For investors, unlocked equity is usually the down payment on the next property — see investment property down payments.
Escrow
A neutral third party holding money or documents until conditions are met. It means two things in practice: the escrow that holds your earnest money and handles closing, and the escrow account your servicer uses to collect and pay property taxes and insurance alongside your mortgage payment. Many investment loans let you waive the tax-and-insurance escrow for a small pricing adjustment.
FHA loan
A government-insured mortgage allowing 3.5% down with credit scores as low as 580, designed for primary residences. The tradeoff is MIP — mortgage insurance you pay upfront and monthly, usually for the life of the loan at low down payments. FHA shines for lower-credit buyers; stronger borrowers often do better conventional. See FHA vs conventional.
Hard money loan
A short-term, asset-based loan from a private lender, underwritten primarily on the property — often its ARV — rather than your income or credit. Expect double-digit rates, points at closing, and terms of 6–18 months, in exchange for speed and flexibility conventional lenders can't match. It's a tool for flips and bridge situations, not long-term holds.
HELOAN (Home Equity Loan)
A lump-sum second mortgage with a fixed rate and fixed payments, secured behind your first lien. Unlike a HELOC, you get all the money at once and the rate never moves — better for a single known expense, worse for ongoing flexibility. Because it's a second lien, you keep your existing first mortgage rate intact, which matters when your current rate is lower than today's.
HELOC (Home Equity Line of Credit)
A revolving credit line secured by your home as a second lien — borrow what you need during the draw period, pay interest only on what you use. Rates are variable, typically tied to prime. It's ideal for staged expenses like renovations or keeping dry powder for deals; compare it to pulling a lump sum in HELOC vs cash-out refi, and note rentals have their own rules — see HELOC on investment property.
Interest-only mortgage
A loan where you pay only interest for an initial period — commonly 5 or 10 years — before payments recast to fully amortize over the remaining term. The lower initial payment boosts cash flow, which is why many DSCR investors choose IO to improve their coverage ratio. You build no equity from payments during the IO period, and the post-IO payment jump is real. Details in interest-only mortgages.
ITIN loan
A mortgage for borrowers who have an Individual Taxpayer Identification Number instead of a Social Security number — typically foreign nationals and non-permanent residents who file U.S. taxes. These are non-QM loans with larger down payments (usually 15–25%) and slightly higher rates, but they're fully legitimate paths to ownership. See ITIN mortgage loans.
Jumbo loan
A mortgage larger than the conforming loan limit for its county, so it can't be sold to Fannie Mae or Freddie Mac. Jumbo underwriting is stricter — expect higher reserves, lower max LTV, and full documentation, though pricing is often competitive with conforming for strong borrowers. Self-employed jumbo borrowers who can't show tax-return income may pair jumbo amounts with bank statement programs.
LLPA (Loan-Level Price Adjustment)
Fee adjustments Fannie Mae and Freddie Mac charge based on risk factors: credit score, LTV, occupancy, property type, and cash-out status. LLPAs are why an investment-property cash-out refinance prices meaningfully worse than a primary-home purchase at the same rate sheet. They're charged in points but usually absorbed into your rate — the reason two borrowers get different quotes for the "same" loan.
LTC (Loan-to-Cost)
The loan amount divided by a project's total cost — purchase price plus renovation budget. Flip and bridge lenders typically cap both LTC (often 80–90%) and loan-to-ARV (often 65–75%), lending the lesser of the two. LTC determines how much of your own cash a deal requires, making it the first number to run on any value-add project.
LTV (Loan-to-Value)
The loan amount divided by the property's appraised value — an 80% LTV on a $500,000 home means a $400,000 loan. Lower LTV means better pricing, no mortgage insurance, and easier approval. Maximum LTVs step down for second homes and rentals versus primary residences, which drives the down payment math in investment property down payments.
MIP (Mortgage Insurance Premium)
The mortgage insurance on FHA loans: an upfront premium of 1.75% of the loan amount (usually financed) plus an annual premium paid monthly. With less than 10% down, MIP lasts the life of the loan — the main reason FHA borrowers refinance to conventional once they hit 20% equity. Compare against PMI in FHA vs conventional.
Non-QM loan
Any mortgage outside the federal Qualified Mortgage rules — the umbrella covering DSCR, bank statement, ITIN, asset depletion, and most interest-only loans. Non-QM doesn't mean subprime; it means alternative documentation and risk-based pricing, typically 0.5–2% above conventional rates. For self-employed borrowers and investors, non-QM is often the only product that reads their finances accurately.
PITIA
Principal, Interest, Taxes, Insurance, and Association dues — the full monthly cost of owning a property. It's the payment lenders use in your DTI and the denominator in a DSCR calculation. Underestimating taxes or HOA dues is the most common way borrowers misjudge whether a rental actually cash-flows.
PMI (Private Mortgage Insurance)
Insurance required on conventional loans with less than 20% down, protecting the lender if you default. Cost depends on credit score and LTV — roughly 0.3–1.5% of the loan annually — and you can request removal at 80% LTV; it drops automatically at 78%. Unlike FHA's MIP, PMI is temporary, which is a core argument in FHA vs conventional.
Pre-approval
A lender's conditional commitment after verifying your credit, income, and assets — not just the self-reported estimate a prequalification gives you. A pre-approval letter is what makes sellers take your offer seriously and pins down your real budget. The difference matters more than most buyers realize: see pre-approval vs prequalification.
Prepayment penalty
A fee for paying off a loan early, standard on DSCR and other investment loans (they're banned on most owner-occupied mortgages). The typical structure is a 3-2-1 step-down: 3% of the balance if paid off in year one, 2% in year two, 1% in year three. Accepting a longer penalty buys a lower rate — just make sure it matches your exit timeline. Full breakdown in prepayment penalties explained.
Rate lock
A lender's commitment to hold your quoted rate for a set window — usually 30, 45, or 60 days — protecting you if the market moves before closing. Longer locks cost more, and letting a lock expire means relocking at current pricing. Some lenders offer a float-down if rates fall after you lock. Timing strategy is covered in mortgage rate locks explained.
Reserves
Liquid assets left over after closing, measured in months of PITIA. Primary-home loans may need 0–2 months; investment properties typically require 3–6 months, and more if you own multiple rentals. Retirement accounts usually count at a discount. Borrowers with substantial assets but thin income can even qualify on assets alone via asset depletion loans.
Seasoning
The minimum time something must age before a lender will count it: ownership seasoning before a cash-out refinance uses appraised value (often 6–12 months), seasoning of large deposits (60–90 days), or time since a bankruptcy or foreclosure. Seasoning rules are the main friction in BRRRR timelines — delayed financing and certain DSCR programs exist partly to work around them.
Second home vs investment property
Occupancy classification with real pricing consequences: a second home you personally use gets better rates and lower down payments than an investment property you rent out. Lenders verify intent — distance from your primary home, rental listings, and usage patterns — and misrepresenting occupancy is mortgage fraud. If it will be rented most of the year, it's an investment property; see second home vs investment property.
Second lien
A loan secured by a property that already has a first mortgage — HELOCs and HELOANs are the common examples. In a foreclosure, the second lienholder is paid only after the first is made whole, which is why second liens carry higher rates. Lenders limit second liens by CLTV rather than standalone LTV.
Soft credit pull
A credit check that doesn't affect your score, used for prequalifications and initial rate quotes. A hard pull — required for a full pre-approval and underwriting — can ding your score a few points, though multiple mortgage inquiries within a 45-day window count as one. Shop lenders freely inside that window; the soft-vs-hard distinction is covered in pre-approval vs prequalification.
Title insurance
A one-time-premium policy protecting against defects in a property's ownership history — forged deeds, unknown heirs, unreleased liens. The lender's policy is required on every mortgage; the owner's policy is optional but protects your equity, typically for a modest add-on at purchase. On a refinance you buy a new lender's policy, often at a discounted "reissue" rate.
Underwriting
The lender's formal review of your credit, income, assets, and the property before final approval. Expect "conditions" — document requests like updated statements or letters of explanation — between conditional approval and clear-to-close. The documentation path differs by product: full-doc conventional scrutinizes tax returns, while DSCR underwriting focuses on the property and bank statement loans on deposit history. Avoid new debts or large unexplained deposits while in underwriting.
VA loan
A mortgage guaranteed by the Department of Veterans Affairs for eligible veterans, active-duty service members, and surviving spouses: zero down payment, no monthly mortgage insurance, and competitive rates. There's a one-time funding fee (waivable for disabled veterans) and you'll need a COE. It's the strongest loan product in the market for those who qualify — see VA loans with zero down.
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