Glossary
50 mortgage terms, in plain English
The industry has a habit of using a four-syllable word where a short sentence would do. Here is what each of them actually means, and which ones will cost you money if you ignore them.
- Adjustable-rate mortgageARM
- A loan with a rate fixed for an initial period — five, seven or ten years — that then adjusts on a schedule against an index plus a fixed margin. Caps limit how far it can move at each adjustment and over the life of the loan. Fixed vs adjustable →
- Amortization
- The schedule by which a loan is paid off. Early payments are mostly interest and late payments mostly principal, which is why refinancing into a fresh 30-year term restarts a clock you had been working down.
- Annual percentage rateAPR
- The cost of the loan expressed as a rate, including certain fees as well as the interest rate. Useful for comparing two quotes with different fee structures; less useful if you plan to sell or refinance early, since it assumes you keep the loan for the full term.
- Appraisal
- An independent opinion of the property’s value, ordered by the lender and paid for by you. It protects the lender from over-lending and, incidentally, protects you from overpaying. On FHA and VA loans the appraiser also checks the property against minimum condition standards.
- Appraisal gap
- The difference when a property appraises below the contract price. The lender lends against the lower number, so the gap is covered by the buyer in cash, by renegotiating the price, or by walking away if the contract allows it.
- Assumable mortgage
- A loan a qualified buyer can take over from the seller on the existing terms. VA and FHA loans are generally assumable; conventional loans generally are not. In a high-rate market, an assumable low-rate loan is a genuine selling feature.
- Automated underwriting systemAUS
- The software that reads your file against Fannie Mae, Freddie Mac or agency guidelines and returns findings — approve, refer or ineligible. A pre-approval that has been through automated underwriting is worth substantially more than one that has not.
- Cash to close
- The total you actually need at the closing table: down payment plus closing costs plus prepaid items, less any deposit already paid and any credits. This is the number to plan around, not the down payment.
- Clear to closeCTC
- Underwriting has signed off on every condition and the file is ready for a closing appointment. It is the moment the transaction stops being uncertain.
- Closing costs
- Third-party and lender charges paid at closing — origination, appraisal, title work and insurance, recording fees, transfer taxes, and prepaid interest, taxes and insurance. Commonly two to five percent of the purchase price. Closing costs, line by line →
- Closing DisclosureCD
- The final five-page statement of your loan terms and closing costs, required at least three business days before you sign. Read it against your original Loan Estimate. That comparison is the single most useful thing a borrower can do.
- Conforming loan
- A loan that meets Fannie Mae and Freddie Mac guidelines, including the annual loan limit — $832,750 on a one-unit property for 2026. Loans above the limit are jumbo and are underwritten to different rules. Conventional loans →
- Contingency
- A condition in the purchase contract that lets a buyer exit or renegotiate — commonly financing, appraisal, inspection or sale of an existing home. In North Carolina the due diligence period plays much of this role.
- Debt-to-income ratioDTI
- Your total monthly debt payments divided by gross monthly income, expressed as a percentage. It is frequently the binding constraint on how much you can borrow — more often than the credit score is.
- Discount points
- Prepaid interest, priced as a percentage of the loan amount, that buys a lower rate. One point is one percent of the loan. Worth it when you keep the loan long enough to recover the cost, which is a break-even calculation rather than an opinion.
- Down payment
- The portion of the purchase price you pay yourself. Not 20 percent, unless you want to avoid mortgage insurance — conventional starts at 3 percent, FHA at 3.5, and VA and USDA can be zero. Down payment help →
- Due diligence period
- In North Carolina, a negotiated window during which the buyer can inspect, appraise, apply for financing and terminate for any reason, forfeiting only the due diligence fee. It is where inspections and appraisals need to land.
- Earnest money
- A good-faith deposit held in escrow and credited toward your cash to close. Distinct from the due diligence fee, which is generally non-refundable and paid directly to the seller.
- Equity
- The difference between what the property is worth and what you owe on it. Built by paying down the balance and by appreciation, and the lever behind mortgage insurance removal, cash-out refinancing and home equity lines.
- Escrow accountImpound account
- An account your servicer uses to collect property taxes and homeowners insurance monthly and pay them when due. It is why your payment can change year to year even on a fixed-rate loan.
- Escrow shortage
- What happens when taxes or insurance rise and the escrow account collected too little. The servicer makes up the gap by raising your monthly escrow, sometimes noticeably. It is not a mistake and it is not a rate change.
- Fannie Mae and Freddie Mac
- The two government-sponsored enterprises that buy conventional loans, and therefore write the guidelines most conventional loans are underwritten to. Neither one lends to consumers directly.
- FHA loan
- A mortgage insured by the Federal Housing Administration, with more forgiving credit and debt-to-income guidelines than conventional financing. The trade is mortgage insurance that is usually permanent. FHA loans →
- Funding fee
- A one-time charge on a VA loan, set by statute, that can be financed into the balance. It is waived for veterans receiving compensation for a service-connected disability. VA loans →
- Gift funds
- Money from an eligible donor toward your down payment or closing costs, allowed on all major programs with a signed gift letter and a documented transfer. Cash is the enemy here; move it by transfer so it can be traced.
- Home equity line of creditHELOC
- A revolving line secured by your home, drawn as needed, usually at a variable rate. Frequently the simpler tool for a small renovation when you already own the house and have equity.
- Homeowners insurance
- Hazard coverage on the structure, required by every lender and paid through escrow in most cases. Shop it independently of the mortgage — premiums vary far more between carriers than borrowers expect.
- Interest rate
- The cost of borrowing the principal, expressed annually. It determines your payment; it is not the same as APR, and it is not the only thing worth comparing between two lenders.
- IRRRLVA streamline refinance
- The Interest Rate Reduction Refinance Loan: a light-documentation refinance of one VA loan into another at a lower rate, often without a new appraisal, with a 0.5 percent funding fee. Refinancing →
- Jumbo loan
- A loan above the conforming limit, underwritten to investor guidelines rather than agency ones. Expect deeper documentation, real reserve requirements and a human reading the whole file. Jumbo loans →
- Loan EstimateLE
- A standardized three-page disclosure of your rate, payment and closing costs, delivered within three business days of application. It exists so quotes can be compared line for line. Get more than one.
- Loan-to-value ratioLTV
- The loan amount divided by the property value. It drives mortgage insurance, pricing and eligibility — 80 percent is the threshold where conventional mortgage insurance can come off.
- LockRate lock
- A commitment from the lender to honor a specific rate for a set number of days, provided the loan closes inside the window and the file does not materially change. A lock protects you from a rise; it also stops you benefiting from a fall unless the product includes a float-down. What a rate lock does →
- Mortgage insurancePMI / MIP
- Insurance that protects the lender, not you, when the down payment is below 20 percent. On conventional loans it is PMI and it comes off at 20 percent equity. On FHA loans it is MIP and above 90 percent loan-to-value it is permanent.
- NMLS
- The Nationwide Multistate Licensing System, the registry of licensed mortgage companies and loan officers. Every loan officer has a personal NMLS number — mine is 1782820 — and you can look up anyone at NMLS Consumer Access.
- Origination fee
- The lender’s charge for making the loan, shown on the Loan Estimate. Some lenders charge it, some price it into the rate. Comparing origination fees between two quotes without also comparing rates tells you very little.
- PITI
- Principal, interest, taxes and insurance — the four components of a full housing payment, plus mortgage insurance and any HOA dues where they apply. Any calculator that shows you only principal and interest is understating your payment. Payment calculator →
- Pre-approval
- A lender’s conditional commitment based on reviewed credit, income and asset documentation, ideally run through automated underwriting. Materially stronger than a pre-qualification, and what a listing agent expects to see with an offer.
- Pre-qualification
- An estimate based on information you stated but nobody verified. Fine as a first conversation, close to worthless in a competitive offer.
- Principal
- The amount you actually borrowed, and the portion of each payment that reduces it. Extra payments applied to principal shorten the loan and cut total interest sharply.
- Private mortgage insurancePMI
- Mortgage insurance on a conventional loan above 80 percent loan-to-value. Priced off credit score and loan-to-value, requestable for removal at 80 percent and automatically terminated at 78 percent. Conventional loans →
- Reserves
- Liquid assets remaining after closing, measured in months of full housing payment. Rarely required on a straightforward conventional purchase, routinely required on jumbo and investment files.
- Seller concessionsSeller-paid closing costs
- An agreed amount the seller contributes toward the buyer’s closing costs, within limits set by the loan program. Often more valuable to a cash-tight buyer than a price reduction of the same size.
- Servicer
- The company that collects your payment, manages your escrow account and handles payoffs after closing — not necessarily the company that made the loan. Fairway services many of its own loans, which is why your first payment notice matters.
- Settlement statement
- The closing accounting prepared by the closing attorney or title company, showing every debit and credit for both sides. In North and South Carolina an attorney typically handles closing.
- Survey
- A drawing of the property boundaries, easements and improvements. Not always required, and worth having anyway on acreage, on anything with a shared drive, and any time a fence looks like it might be in an interesting place.
- Title insurance
- Protection against defects in the property’s ownership history — liens, errors, missed heirs. The lender’s policy is required; the owner’s policy is optional, one-time, and almost always worth buying.
- Underwriting
- The formal review of you and the property against program guidelines, ending in an approval with conditions. Conditions are normal. The number of days it takes to clear them is the part that varies, and the part I manage by name.
- USDA loan
- A zero-down loan guaranteed by the U.S. Department of Agriculture for properties inside eligible areas, subject to household income limits. Far more Charlotte-adjacent ground qualifies than people assume. USDA loans →
- VA loan
- A mortgage guaranteed by the Department of Veterans Affairs for eligible veterans, service members and surviving spouses. No down payment, no monthly mortgage insurance, and reusable entitlement. VA loans →
Definitions are general explanations, not program guidelines or legal definitions, and terms can be applied differently by different investors and agencies. This is not an offer to enter into an agreement or a commitment to lend. Not all applicants will qualify. Information and rates are subject to change without notice. All loans are subject to credit review and approval. Fairway Home Mortgage is a division of Fairway Independent Mortgage Corporation. NMLS Entity ID #2289.
Next step
Knowing the words helps. Knowing your numbers helps more.
A pre-approval turns all of this vocabulary into a specific payment, a specific cash-to-close figure and a letter you can attach to an offer.