Mortgage glossary

A

Adjustable-rate mortgage (ARM)

A loan whose interest rate is fixed for an initial period and then can change at set intervals based on a market index. Caps limit how much the rate can move. Compare loan programs →

Amortization

Paying off a loan over time with regular payments that cover both interest and principal. Early payments are mostly interest; later payments are mostly principal.

Annual percentage rate (APR)

The yearly cost of a loan including the interest rate and certain fees, shown as a percentage. Because it includes fees, it helps you compare offers side by side.

Appraisal

A licensed appraiser's opinion of a home's market value, ordered through the lender. The appraised value helps set how much can be borrowed.

Appraisal gap

The difference when a home appraises for less than the agreed price. The buyer, seller, or both may need to cover it, or the price may be renegotiated.

Assumable mortgage

A loan that a qualified buyer can take over from the seller, keeping the existing rate and terms. FHA, VA and USDA loans are often assumable with lender approval. VA loan assumption →

C

Cash to close

The total amount you bring to closing, including down payment and closing costs, minus deposits and credits.

Cash-out refinance

Replacing your mortgage with a larger loan and receiving the difference in cash. Refinance options →

Certificate of Eligibility (COE)

The VA document that confirms a veteran, service member or surviving spouse is eligible for a VA home loan and shows their entitlement. Lenders can usually request it online. VA home loans →

Clear to close

The point when underwriting has approved your loan and closing can be scheduled. The mortgage process →

Closing costs

Fees and charges paid at closing, such as lender, title, appraisal, recording and prepaid items. They are listed on your Loan Estimate and Closing Disclosure.

Closing Disclosure

A standard five-page form you receive at least three business days before closing that shows your final loan terms and costs.

Combined loan-to-value (CLTV)

All loans secured by a home, such as a first mortgage plus a HELOC, divided by the home's value. Lenders use it to decide how much equity can be borrowed against. Home equity line of credit →

Conditional approval

Underwriting has approved your loan as long as certain conditions are met, such as an updated pay stub or a letter explaining a deposit. The mortgage process →

Conforming loan limit

The largest loan amount Fannie Mae and Freddie Mac will buy, set each year by the FHFA and higher in some high-cost counties. Loans above it are jumbo loans. Conventional loans →

Construction loan

A short-term loan that pays for building a home in stages, often converting to a permanent mortgage when the home is finished. Construction loans →

Contingency

A condition in a purchase contract that must be met for the sale to go through, such as financing, inspection or appraisal.

Conventional loan

A mortgage not insured or guaranteed by a government agency. Most follow Fannie Mae or Freddie Mac guidelines. Conventional loans →

Credit score

A three-digit number based on your credit history that lenders use to judge risk. It affects which programs and pricing you qualify for.

D

Debt-to-income ratio (DTI)

Your monthly debt payments, including the new house payment, divided by your gross monthly income. How much income do I need? →

Discount points

Optional fees paid at closing to lower your interest rate. One point equals one percent of the loan amount.

Down payment

The part of the purchase price you pay up front rather than borrow. The minimum depends on the loan program. Low down payment options →

Down payment assistance

Grants or second loans from state, county or local programs that help with the down payment or closing costs. Florida's Hometown Heroes program is one example. Florida Hometown Heroes →

Draw period

The first phase of a HELOC, when you can borrow from the line as needed. A repayment period follows. Home equity line of credit →

DSCR loan

An investment property loan that qualifies based on the property's rental income compared with its payment (debt service coverage ratio) instead of your personal income. DSCR loans →

E

Earnest money

A good-faith deposit you make when your offer is accepted. It is usually held in escrow and credited toward your cash to close.

Entitlement (VA)

The amount the VA will guarantee on a veteran's home loan. Full entitlement means no VA loan limit applies; partial entitlement can still be used. VA entitlement explained →

Equity

The part of your home you own outright: its value minus what you owe on it.

Escrow account

An account your loan servicer uses to collect a portion of your property taxes and insurance with each payment and pay those bills when due.

F

FHA loan

A mortgage insured by the Federal Housing Administration, with flexible credit guidelines and a low down payment option. FHA home loans →

FHA 203(k) loan

An FHA loan that combines the purchase or refinance of a home with the cost of repairs or renovations in one mortgage. FHA 203(k) loans →

First-time home buyer

Generally someone who has not owned a home in the past three years. Many programs and down payment assistance options are built for first-time buyers. First-time home buyer loans →

Fixed-rate mortgage

A loan with an interest rate that stays the same for the life of the loan, so principal and interest payments do not change. Fixed-rate mortgages →

Flood insurance

Insurance that covers flood damage, which standard homeowners policies do not. It is required for homes in high-risk flood zones with a federally backed mortgage.

Four-point inspection

An inspection of a home's roof, electrical, plumbing and HVAC that many Florida insurers request for older homes.

Funding fee (VA)

A one-time fee on most VA loans that helps fund the program. It can be financed into the loan, and veterans receiving VA disability compensation are exempt. VA funding fee exemption →

G

Gift funds

Money given by a relative or other eligible donor toward your down payment or closing costs, documented with a gift letter.

H

HELOC

A home equity line of credit: a revolving line secured by your home's equity that you can draw from, repay and draw again during the draw period. Home equity line of credit →

Home equity loan

A second mortgage paid out as a lump sum with fixed payments, secured by your home's equity.

Homeowners association (HOA) dues

Regular fees paid to an HOA or condo association for shared upkeep and amenities. Lenders count them in your housing payment.

Homeowners insurance

Insurance that covers your home and belongings against damage such as fire and wind. Lenders require it, and it is often paid through escrow.

Homestead exemption

A Florida property tax benefit for a primary residence that lowers its taxable value and limits annual assessment increases. Veteran property tax exemptions →

I

Interest rate

The cost of borrowing, shown as a yearly percentage of the loan balance. It does not include fees; APR does.

IRRRL

The VA Interest Rate Reduction Refinance Loan, or VA streamline: a refinance from one VA loan to another with simplified documentation. VA IRRRL guide →

J

Jumbo loan

A loan above the conforming loan limit for the county. Jumbo home loans →

L

Lien

A legal claim against a property that secures a debt. A mortgage is a lien; liens are paid off or cleared at closing.

Loan Estimate

A standard form you receive within three business days of applying that estimates your loan terms and costs.

Loan officer

The licensed professional who takes your application, explains your options and guides the loan to closing. Every loan officer has an NMLS number. Meet our loan officers →

Loan-to-value ratio (LTV)

Your loan amount divided by the home's value or purchase price.

M

Manual underwriting

A review of a loan file by an underwriter instead of an automated system, used when a file needs a closer look, such as limited credit history. VA manual underwriting →

Mortgage broker

A licensed company that compares loan programs from multiple wholesale lenders to find a fit for each borrower. FLO Mortgage is a mortgage broker. Florida mortgage broker →

Mortgage insurance (PMI / MIP)

Insurance that protects the lender when the down payment is smaller. Conventional loans use PMI, which can be removed later; FHA loans use MIP.

N

NMLS

The Nationwide Multistate Licensing System, which licenses mortgage companies and loan officers. You can look up any license at NMLS Consumer Access. Our licensing →

O

Origination fee

A lender or broker fee for processing and arranging the loan, shown on your Loan Estimate.

P

PITI

Principal, interest, taxes and insurance: the four parts of a typical monthly house payment. Mortgage calculator →

Pre-approval

A lender's review of your credit, income and assets that shows how much you may be able to borrow. It makes your offer stronger. How to get pre-approved →

Pre-qualification

A quick estimate of what you might borrow, usually based on information you provide. It is less detailed than a pre-approval.

Prepaids

Costs paid in advance at closing, such as homeowners insurance, daily interest and the deposit to start your escrow account.

Principal

The amount you borrowed, or the part of the balance still owed, not counting interest.

R

Rate lock

A lender's commitment to hold an interest rate for a set period while your loan is processed.

Refinance

Replacing your current mortgage with a new one, for example to change the rate or term, remove mortgage insurance or take cash out. Refinance options →

Rehab loan

A mortgage that includes money for repairs or renovations, such as an FHA 203(k) or a conventional renovation loan. Rehab loans →

Repayment period

The phase of a HELOC after the draw period ends, when you can no longer borrow and repay the balance. Home equity line of credit →

Reserves

Savings left after closing, often counted in months of house payments. Some programs require them.

Residual income (VA)

The money left each month after major expenses. VA loans use it, along with DTI, to confirm the payment is affordable. VA residual income →

Reverse mortgage (HECM)

A loan for homeowners 62 and older that turns home equity into cash with no required monthly mortgage payment. Taxes, insurance and upkeep must still be paid. Reverse mortgages →

S

Seller concessions

Closing costs the seller agrees to pay for the buyer. Each loan program limits how much is allowed.

Survey

A drawing of the property's boundaries, improvements and easements, often ordered for a purchase.

T

Title insurance

Insurance that protects the lender, and optionally you, against problems with the property's ownership history.

Title search

A review of public records to confirm the seller can transfer clear ownership and to find any liens.

U

Underwriting

The lender's review of your credit, income, assets and the property to decide whether to approve the loan. The mortgage process →

USDA loan

A mortgage backed by the U.S. Department of Agriculture for eligible rural and suburban areas, with income limits. USDA loans →

V

VA loan

A mortgage guaranteed by the Department of Veterans Affairs for eligible veterans, service members and surviving spouses. VA home loans →

W

Wind mitigation inspection

A Florida inspection that documents features that resist wind damage, such as roof straps and shutters, and can lower insurance premiums.