Amortization
The gradual repayment of a loan through scheduled payments. Each payment includes interest and principal. On a typical fixed-rate mortgage, more of the payment goes toward principal as the balance falls.
Dwayne Thompson Mortgage · Cornerstone First Mortgage
Mortgage Glossary
Clear definitions for the terms you’ll encounter, from your first conversation through closing.
30 of 30 terms
APR vs. Interest Rate
The interest rate is the rate charged on your loan balance. The annual percentage rate (APR) includes the interest rate plus certain loan fees, expressed as a yearly rate. APR helps compare borrowing costs, but compare loans with similar terms and look at the fees, too.
Appraisal
An estimate of a property's market value, usually prepared by a licensed or certified appraiser. A lender uses it to help evaluate the home as collateral. An appraisal is not a home inspection.
Asset Depletion
A qualifying method that converts eligible assets into a calculated monthly income amount. It may help borrowers with substantial savings or investments qualify without relying only on employment income. Eligible assets and calculation methods vary by program.
Bank Statement Loan
A Non-QM loan that may use eligible bank deposits to evaluate income instead of relying primarily on tax returns. It can be an option for self-employed borrowers. Lenders review deposit history, business expenses and other qualifying requirements.
Cash-Out Refinance
A new mortgage that replaces your existing mortgage with a larger loan, allowing you to receive some of your home equity as cash after paying off the old loan and closing costs. It changes the terms of your main mortgage.
Closing Costs
Fees and expenses paid when a mortgage closes, in addition to your down payment. They can include lender fees, title services, recording fees and prepaid items such as insurance or interest. Costs vary by loan and location.
Closing Disclosure
A five-page form showing the final terms, projected payments and closing costs for most consumer mortgages. For loans requiring this form, you generally must receive it at least three business days before closing. Compare it with your Loan Estimate and ask about changes.
Conventional Loan
A mortgage that is not insured or guaranteed by a federal government agency. Some conventional loans follow Fannie Mae or Freddie Mac guidelines. Down payment, credit and mortgage insurance requirements depend on the program.
Cornerstone Flex Line
A first- or second-lien line of credit based on the value of your home, with interest-only payment options, no appraisal required and amounts up to $500,000. Availability and terms depend on borrower and property eligibility and approval.
Debt-to-Income Ratio (DTI)
The percentage of your gross monthly income used for monthly debt payments, including your proposed housing payment. For example, $2,000 in monthly debts divided by $6,000 in gross monthly income is about 33% DTI. Lenders use it to help assess affordability; limits vary by program.
Debt Service Coverage Ratio (DSCR)
A measure of how well an investment property's income covers its debt payments. For some residential DSCR loans, lenders compare qualifying rent with the proposed payment, including taxes, insurance and applicable association dues. A ratio of 1.0 means the qualifying income equals that payment. Calculations and requirements vary by lender.
Down Payment
The portion of a home's purchase price you pay upfront rather than finance. It is separate from closing costs. Minimum down payments vary by program, and some eligible borrowers may qualify for programs with no down payment.
Earnest Money
A deposit made under a purchase contract to show you are serious about buying a home. It is usually credited toward your down payment or closing costs at closing. Whether it is refundable depends on the contract and its contingencies.
Equity
The difference between your home's current value and what you owe against it. If a home is worth $350,000 and the mortgage balance is $250,000, the equity is $100,000. How much you can borrow against it depends on program limits and eligibility.
Escrow
An account holding money for a specific purpose. A mortgage escrow account collects money with your monthly payment to pay property taxes and homeowners insurance when due. During a purchase, an escrow arrangement can also hold funds until contract conditions are met.
Fixed Rate vs. Adjustable Rate
A fixed-rate mortgage keeps the same interest rate for the loan term. An adjustable-rate mortgage (ARM) has a rate that may change after an initial period, based on an index and margin, subject to caps. A fixed rate does not prevent taxes or insurance costs from changing.
Home Equity Line of Credit (HELOC)
A revolving line of credit secured by your home. You can borrow, repay and borrow again during the draw period, within your approved limit. Many HELOCs have variable rates, and payments can rise when repayment begins. Your home is collateral.
Lien
A legal claim against property that helps secure repayment of a debt. A first lien generally has priority over a second lien. A second mortgage or home equity line may sit behind your existing first mortgage.
Loan Estimate
A three-page form outlining estimated loan terms, payments and closing costs for most consumer mortgages. For loans requiring it, a lender generally provides it within three business days after receiving your application. It is an estimate, not a loan approval.
Loan-to-Value Ratio (LTV)
The loan amount divided by the property's value used by the lender, expressed as a percentage. A $240,000 loan on a $300,000 value has an 80% LTV. Combined LTV also counts other loans secured by the property.
Non-QM
A mortgage that does not meet the federal Qualified Mortgage criteria. Non-QM programs may offer alternative ways to document income or qualify, such as bank statements, asset depletion or DSCR for investment properties. Non-QM does not mean no underwriting or guaranteed approval.
PITI
Principal, interest, taxes and insurance: the main parts of a typical monthly housing payment. Mortgage insurance and homeowners association dues may add to your total housing expense, even when they are not included in PITI.
Points
A point equals 1% of the loan amount: one point on a $300,000 loan is $3,000. Discount points are an upfront cost that may lower your interest rate. Compare the cost with monthly savings and how long you expect to keep the loan; not every fee described in points buys a lower rate.
Pre-Approval vs. Pre-Qualification
Pre-qualification is typically an initial estimate based on information you provide. Pre-approval usually involves a more detailed review of credit, income and assets. Practices vary by lender. Neither guarantees final approval, which also depends on the property, underwriting and updated financial information.
Principal
The amount of money you borrow and still owe, excluding interest. The principal portion of a mortgage payment reduces your loan balance.
Private Mortgage Insurance (PMI)
Insurance that protects the lender, not the borrower, if you stop repaying your loan. It is commonly required on conventional loans with less than 20% down. Cancellation depends on loan type and applicable requirements; government-backed loans have different mortgage insurance or fee structures.
Rate Lock
An agreement to hold a mortgage interest rate for a specified period under stated conditions. A lock may expire or require an extension if closing is delayed. Changes to your loan details may affect the rate or terms.
Title Insurance
Insurance against certain covered problems with a property's ownership history, such as an undiscovered lien. A lender's policy protects the lender's interest. An owner's policy protects the buyer's interest, subject to policy terms and exclusions.
Underwriting
The lender's review of your finances, credit, documents and the property to determine whether a loan meets its requirements. The underwriter may request additional information before issuing final approval.
Definitions are general educational information, not a loan offer or personalized financial, legal or tax advice. Program requirements and availability vary. Dwayne Thompson at Cornerstone First Mortgage can help explain how these terms apply to your situation.
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