Mortgage paperwork is full of terms that rarely come up anywhere else in daily life. Below is a plain-English glossary of the ones you're most likely to encounter, from application through closing.
Rates and Costs
APR (Annual Percentage Rate)
A broader measure of borrowing cost than the interest rate alone — it folds in certain fees and closing costs, expressed as a yearly rate, so you can compare the true cost of loans with different fee structures. A loan's APR is always shown alongside its interest rate on the Loan Estimate and Closing Disclosure.
Discount Points
Optional upfront fees paid at closing to lower your interest rate. One point generally costs 1% of the loan amount and reduces the rate by a set amount depending on the lender's pricing that day.
Origination Fee
A fee charged by the lender for processing and underwriting the loan, usually expressed as a percentage of the loan amount or a flat dollar figure.
The Payment Itself
PITI
Shorthand for Principal, Interest, Taxes, and Insurance — the four components typically bundled into a single monthly mortgage payment when taxes and insurance are escrowed. Understanding PITI (not just principal and interest) is the right way to evaluate whether a payment truly fits your budget.
Escrow Account
An account held by your loan servicer that collects a portion of your property taxes and homeowners insurance each month as part of your payment, then pays those bills on your behalf when they're due. It keeps you from having to save separately for a large annual tax or insurance bill.
Amortization
The schedule by which your loan balance is paid down over time through fixed monthly payments. Early in the loan, a larger share of each payment goes toward interest; later, a larger share goes toward principal, even though the total payment stays the same on a fixed-rate loan.
Qualifying and Risk
LTV (Loan-to-Value Ratio)
The loan amount divided by the appraised value (or purchase price, if lower) of the home, expressed as a percentage. An 90% LTV means you're financing 90% of the home's value and putting 10% down. Lower LTV generally means better pricing and, on conventional loans, the ability to avoid or remove mortgage insurance.
DTI (Debt-to-Income Ratio)
Your total monthly debt payments (including the new mortgage) divided by your gross monthly income. Lenders use DTI as a core measure of how much additional payment you can reasonably afford; most programs cap it somewhere in the 43-50% range depending on the loan type and other compensating factors.
PMI (Private Mortgage Insurance)
Insurance required on most conventional loans with less than 20% down, protecting the lender (not you) if you default. It's typically added to your monthly payment and can usually be removed once you reach roughly 20-22% equity in the home.
MIP (Mortgage Insurance Premium)
The FHA equivalent of PMI. Unlike conventional PMI, MIP on most FHA loans lasts for the life of the loan unless you put down 10% or more at closing, in which case it drops off after 11 years.
Underwriting
The process by which a lender verifies your income, assets, credit, and the property itself to make a final decision on the loan. Underwriters review documentation against the loan program's specific guidelines and can approve, deny, or approve with conditions that need to be satisfied before closing.
Conditional Approval
An underwriting decision that approves the loan pending specific additional items — an updated pay stub, an explanation letter, proof of a paid-off debt. Clearing conditions promptly keeps the closing timeline on track.
The Property
Appraisal
An independent, licensed appraiser's assessment of a property's market value, required by the lender to confirm the home is worth at least what's being borrowed against it. If the appraisal comes in below the purchase price, it can affect the loan amount and may require renegotiation of the purchase price or an increased down payment.
Title Insurance
Insurance that protects against defects in the property's ownership history — undisclosed liens, unpaid taxes, boundary disputes, or ownership claims from a previous owner. Lender's title insurance protects the lender; owner's title insurance (optional but recommended) protects you.
Contingency
A condition written into a purchase contract that must be satisfied for the sale to proceed, such as a financing contingency (the deal falls through if the buyer can't secure a loan), an appraisal contingency, or an inspection contingency.
HOA (Homeowners Association)
An organization that manages shared amenities and enforces rules for certain communities, condos, and townhomes, funded by mandatory dues. HOA dues are factored into your qualifying debt and total housing cost even though they aren't part of PITI.
Loan Structure
Fixed-Rate Mortgage
A loan where the interest rate stays the same for the entire term, keeping the principal-and-interest portion of your payment constant.
ARM (Adjustable-Rate Mortgage)
A loan with an interest rate that's fixed for an initial period, then adjusts periodically based on a market index, subject to caps limiting how much it can move at each adjustment and over the life of the loan.
Conforming Loan
A conventional loan that meets Fannie Mae or Freddie Mac's guidelines, including a maximum loan amount that's set annually and varies by county.
Jumbo Loan
A loan that exceeds the conforming loan limit for its area, subject to its own underwriting guidelines, typically requiring stronger credit and larger reserves than a conforming loan.
Closing
Loan Estimate
A standardized document lenders must provide within three business days of your application, outlining the estimated interest rate, monthly payment, and closing costs.
Closing Disclosure
The final, standardized statement of your actual loan terms and closing costs, required at least three business days before closing so you can compare it against your Loan Estimate.
Cash-to-Close
The total amount of money you need to bring to closing, combining your down payment, closing costs, and prepaid items, minus any credits (like earnest money already paid or a seller credit).
Pre-Approval
A lender's conditional commitment to lend, based on a full review of your income, assets, and credit — distinct from a pre-qualification, which is an informal estimate based on unverified information you provide.
This list covers the terms that come up most often, but if you run into something in your paperwork that isn't defined here, ask — a good loan officer would rather explain a term twice than have you sign something you don't fully understand.