Mortgage terms, in plain English

The mortgage world loves to make simple things sound complicated. Here's what the words actually mean, no jargon. If something here still isn't clear, that's what I'm for.

Pre-approval

This isn't a guess. I check your income and credit so you know your budget and sellers take your offer seriously. Get pre-approved before you start shopping.

Pre-qualification

A quick, ballpark estimate based on what you tell me. Useful for a first gut-check. It is not the same as pre-approval, which is verified and carries real weight with a seller.

Mortgage insurance (PMI / MI)

A monthly fee you pay when you put less than 20% down. It protects the lender if you stop paying, not you. On a conventional loan, it comes off when you have enough equity. FHA works differently: with less than 10% down, it stays for the life of the loan unless you refinance.

Points

Money you pay up front to lower your rate for the whole life of the loan. One point is 1% of the loan amount. Worth it if you are staying put a long time, not if you will move or refinance soon. I will run the math both ways so you can see.

Temporary buydown

A lower rate for the first one to three years. Then the payment steps up to the full payment. The seller or a builder can pay for it at closing. You can pay for it too. You qualify at the full rate, so you've already qualified for the later payment.

Escrow / impounds

An account that collects a little each month so your property taxes and homeowners insurance get paid for you, instead of hitting you with big bills twice a year. On my quotes I show the loan payment without it, so the number stays clean and comparable.

DTI (debt-to-income)

How much of your monthly income already goes to debts, written as a percentage. Lenders use it to decide how much you can borrow. Lower is better. Paying off a card before you apply can move it in your favor.

LTV (loan-to-value)

The size of your loan compared to the home's value. Put 20% down and your LTV is 80%. It affects your rate and whether you pay mortgage insurance. The more you put down, the lower it goes.

APR

Your interest rate plus most of the upfront loan costs, blended into one yearly number. It exists so you can compare two loans fairly. Your actual note rate is usually a little lower than the APR.

Rate lock

Locking your rate keeps it from changing before you close, usually for 30 to 60 days. Once we lock, you're protected even if the market jumps the next day.

Closing costs

The one-time fees to set up the loan and transfer the home include appraisal, title, escrow, lender fees and a few others. Your Loan Estimate lists each one. Sometimes the seller pays part of them.

Earnest money

A deposit you put down with your offer to show you are serious. It is not an extra cost. It goes toward your down payment or closing costs at the end, and you get it back if a contingency lets you walk.

Contingency

A condition in your offer that lets you back out without losing your deposit, like a home inspection or the appraisal coming in low. Think of it as your safety net.

Conforming vs jumbo

Conforming loans fall within the yearly limit for loans Fannie Mae and Freddie Mac can buy. That limit is higher in pricier counties, including much of California. Above that, it's a jumbo loan with its own rules. I'll tell you which kind you're getting.

Amortization

How your loan gets paid down over time. Early on, most of your payment is interest. Later, more of it goes to the balance. Same payment each month, different mix inside it.

HELOC

A line of credit against the equity in your home. You borrow what you need, when you need it, and you do not have to touch the low rate on your first mortgage to do it.

Bank-statement loan

A loan that uses your bank deposits to qualify you instead of your tax returns. It's for self-employed people who write a lot off and look broke on paper but run a healthy business. It's one kind of non-QM loan.

Non-QM loan

Short for non-qualified mortgage. It sounds worse than it is. The loan doesn't follow the standard checklist most home loans use. You can show your income through bank deposits, 1099s, a profit and loss statement or savings. Self-employed buyers use it most. It can cost more than a loan based on tax returns.

DSCR loan

DSCR stands for debt service coverage ratio. It's a loan for a rental property that uses the rent to qualify instead of your personal income. The lender compares the monthly rent, from the lease or the appraiser's rent estimate, with the full monthly payment. No tax returns or pay stubs.

Bridge loan

A short-term loan that lets you use the equity in your current home toward the next one before the old one sells. It's paid off when the old home sells or the term ends, whichever comes first. It has its own fees and terms.

Interest-only loan

For a set number of years, you pay only the interest, so the balance doesn't go down. After that, the payment includes principal. On the 40-year interest-only loan, the first 10 years are interest-only, followed by 30 years of principal and interest at the same fixed rate. If you pay no extra principal, the payment after the interest-only years is higher than the interest-only payment. Waiting to pay principal means more interest overall.

Reverse mortgage

A loan with no monthly mortgage payment. The most common kind, a HECM, is for homeowners 62 and up. Interest adds to the balance, and the loan is paid back from the home, not your monthly budget. You still live there and pay the property taxes and insurance. Upkeep is still your responsibility.

HECM for Purchase

A reverse mortgage used to buy a home. Buyers 62 and up sell their current home, and the sale usually covers the down payment. The reverse mortgage covers the rest. No monthly mortgage payment. They still pay taxes and insurance, plus the cost of upkeep, and they live in the home. Counseling comes first.

Gift funds

Money from family to help with your down payment. Allowed on most loans with a short letter saying it is a gift and not a loan you have to repay. I will walk you through the paperwork so it never slows you down.

Seller concessions

When the seller agrees to pay some of your closing costs or fund a buydown. In a slower market it can put more money in your pocket than a simple price cut, and it is often an easier ask than you would think.

Underwriting

The lender's full review of your loan: your income, your credit, and the home itself. It is the step where 'pre-approved' becomes 'cleared to close.' I keep you posted the whole way through so there are no surprises.