This blog was provided by our expert finance partners at Pulte Mortgage™.

With all the acronyms and terminology, understanding mortgage terms can seem like learning a whole new language just to buy a home. But don’t worry, we’ve got you covered! In this guide, you’ll find some of the most common mortgage industry terms you’re likely to hear as you start financing your new home. Keep this cheat sheet handy, and you’ll sound like a homebuying pro in no time.

Summary:

• Mortgage Terms A-Z
• Conclusion

Mortgage Terms A-Z

Amortization Schedule

Kicking off our list of home loan terms, a mortgage amortization schedule is a table showing the allocation of principal and interest due at regular intervals and the unpaid balance of the loan after each payment is made.

Adjustable-Rate Mortgage

An adjustable-rate mortgage, or ARM, is a type of mortgage loan that allows for periodic changes to the interest rate over the life of the loan.

Buydown

A buydown is a payment to the lender from the seller, buyer, or third party, causing the lender to reduce the interest rate.

Closing Disclosure or Settlement Statement

A closing disclosure is a form used at closing that gives an account of all funds received and paid at the closing, including the escrow deposits for taxes, hazard homeowners insurance, and mortgage insurance.

Closing Costs

Closing costs are money paid by the borrower in connection with closing a mortgage loan. This generally involves an origination fee and/or discount points, appraisal, credit report, title insurance, attorney fees, survey, and prepaid items like tax and homeowners insurance escrow payments.

Cash to Close

Cash to close is any liquid assets readily available to pay the down payment, closing costs, and prepaid items of a mortgage transaction.

Debt-to-Income Ratio

The debt-to-income ratio, or DTI, measures a borrower’s total income relative to total debt. Expressed as a percentage, DTI is a primary factor used to qualify individuals for a mortgage.

Down Payment

One of the more familiar mortgage lending terms, a down payment is the total amount of funds paid by a purchaser upfront to buy a home, not including closing costs. It is the difference between the sales price and the loan amount.

Earnest Money

Earnest money is a good-faith deposit made by the purchaser and paid to the seller to secure the purchase of real estate.

Equity

Equity is the market value of a property minus any outstanding mortgage or cooperative loan balance or other encumbrance on the property.

Escrow

Escrow are funds held by the lender and set aside for payment of applicable escrowed items, including but not limited to property taxes, hazard insurance, flood insurance, mortgage insurance, and other recurring charges against real property. Also, escrow is a procedure whereby a disinterested third party handles legal documents and funds on behalf of a seller and buyer.

Fixed Interest Rate

A fixed interest rate is an interest rate that does not change during the loan term.

Gift Letter

A gift letter is a written explanation signed by the individual giving the gift stating, "This is a bona fide gift, and there is no obligation expressed or implied to repay this sum at any time."

Good Faith Estimate

A good faith estimate is a mortgage disclosure generally provided after application. This document identifies costs associated with a mortgage and can be used to compare mortgage offers from different lenders.

Homeowners Association Dues

Homeowners association (HOA) dues are fees imposed by a condominium or homeowners association to help maintain common areas. HOA fees are the responsibility of the borrower to pay directly and are not collected as part of the monthly payment.

Lien

A lien is a legal claim against a property that must be paid off when the property is sold.

Loan Estimate

A loan estimate is a mortgage disclosure that is generally provided after application. The document identifies costs associated with a mortgage and can be used to compare mortgage offers from different lenders.

Loan-to-Value Ratio (LTV)

The loan-to-value ratio (LTV) is the ratio between the unpaid principal amount of a loan and the appraised value of the property expressed as a percentage. For example, if you have an $80,000 mortgage loan on a home with an appraised value of $100,000, the LTV is 80% ($80,000 / $100,000 = 80%).

Mortgage Insurance

Mortgage insurance is an insurance policy that compensates lenders or investors in mortgage-backed securities for losses due to the default of a mortgage loan. A mortgage insurance premium may be collected at loan closing, included in the monthly mortgage payment, or both.

Non-Conforming Loan

A non-conforming loan is when a conventional home mortgage is not eligible for sale and delivery to either Fannie Mae (FNMA) or Freddie Mac (FHLMC) for various reasons, including the loan amount, loan characteristics, or underwriting guidelines. Non-conforming loans usually incur a higher rate and origination fee.

Origination Fee

The origination fee is the amount paid to the lender as a fee for securing financing on a real estate transaction.

Points

The term “points” is used to describe 1% of the loan amount. This is typically associated with “discount points,” which indicate the amount being paid to reduce the loan’s interest rate. One point equals 1% of the loan amount (a one-time charge).

Primary Residence

A primary residence is a home the borrower intends to occupy as a principal residence.

Principle and Interest

The principle and interest, commonly known as P&I, are the two primary components of a mortgage monthly payment. The principal portion of the payment reduces the loan’s balance. If the monthly payment on a mortgage is expressed as P&I, it does not include taxes and insurance.

Purchase Agreement

A purchase agreement is a written agreement signed by the buyer and seller stating the terms and conditions under which a property will be sold.

Rate Lock

A rate lock is a written agreement guaranteeing the homebuyer a specified interest rate provided the loan is closed within a set period.

Recast

On eligible conventional loans, a borrower may request a recast, which is a recalculation of the monthly P&I payment after a large principal prepayment has been made. This will lower the monthly P&I payment.

Refinancing

Refinancing is the process of paying off one loan with the proceeds of a new loan using the same property as security.

Secondary Mortgage Market

The secondary mortgage market is where existing mortgages are bought and sold. It contrasts with the primary mortgage market where mortgages are originated.

Servicer

A servicer is an approved company that performs services on behalf of an investor or owner of mortgage loans, such as collecting mortgage payments and disbursing escrowed items as they become due.

Title Insurance

Title insurance is insurance against loss resulting from defects of title to a specifically described parcel of real property.

Title Search

A title search is an examination of public records to disclose the past and current facts regarding the ownership and lien priority of a given piece of real estate.

Total Debt Ratio

The total debt ratio is the monthly debt and housing payments divided by gross monthly income. It’s also known as the obligations-to-income ratio or back-end ratio.

Truth-in-Lending Act

The Truth-in-Lending Act is a mortgage disclosure provided after a loan application. This disclosure includes a loan's annual percentage rate and can be used to compare mortgage offers from different lenders. The TIL disclosure is a requirement of the federal Truth in Lending Act.

Underwriting

Underwriting is the analysis of credit risk on a specific rate and term for a mortgage on a given property for given borrowers.

Conclusion

If you’re a first-time homebuyer, some of these mortgage loan terms (and more) may be very new to you, but there’s no need to worry. Our mortgage professionals will be with you every step of the way, ready to answer all of your questions. 

Explore new construction homes today or browse more Pulte^® blogs. 

Written By: Meagan Rochard, Financial Services Copywriter and Pulte Mortgage™ Employee

Last Updated: 9/25/24