Lending Terms Dictionary
Mortgage paperwork is full of terms that can feel overwhelming. This dictionary explains every term in plain, everyday language — so you always know exactly what you're signing.
A loan used to purchase real estate, where the property itself serves as collateral. If you stop making payments, the lender can take the property through foreclosure.
The original amount of money you borrowed — not including interest. Each monthly payment reduces your principal balance.
The percentage the lender charges you to borrow money. A lower rate means lower monthly payments and less paid over the life of the loan.
A broader measure of loan cost that includes the interest rate plus fees and other charges. Use APR to compare loans apples-to-apples.
The length of time you have to repay the loan — typically 15 or 30 years. Shorter terms mean higher monthly payments but less total interest paid.
The process of paying off your loan in regular installments over time. Early payments are mostly interest; later payments are mostly principal.
A loan where the interest rate stays the same for the entire loan term. Your monthly payment never changes, making budgeting easy.
A loan where the interest rate is fixed for an initial period (e.g., 5 or 7 years), then adjusts periodically based on market conditions.
A mortgage insured by the Federal Housing Administration. Requires as little as 3.5% down and is popular with first-time buyers or those with lower credit scores.
A mortgage guaranteed by the U.S. Department of Veterans Affairs. Available to eligible veterans, active-duty service members, and surviving spouses. Offers zero down payment and no PMI.
A mortgage not backed by a government agency. Typically requires stronger credit and a larger down payment, but offers more flexibility in property types and loan amounts.
A loan that exceeds the conforming loan limits set by Fannie Mae and Freddie Mac. Requires stronger credit and larger down payments.
A mortgage that meets the size and guidelines set by Fannie Mae and Freddie Mac, making it eligible to be sold on the secondary market.
Replacing your existing mortgage with a new one — usually to get a lower interest rate, reduce your monthly payment, shorten your loan term, or access home equity.
A refinance where you borrow more than you owe on your current mortgage and receive the difference in cash. Used to tap into home equity for renovations, debt payoff, or other needs.
A refinance that changes only your interest rate, loan term, or both — without taking cash out.
An early estimate of how much you may be able to borrow, based on a basic review of your income, assets, and credit. Less formal than pre-approval.
A more thorough review where the lender verifies your income, credit, and assets. A pre-approval letter shows sellers you're a serious, qualified buyer.
A number (typically 300–850) that represents your creditworthiness based on your borrowing and repayment history. Higher scores unlock better interest rates.
Your total monthly debt payments divided by your gross monthly income. Lenders use this to assess your ability to manage monthly payments. Most loans require a DTI below 43–45%.
The loan amount divided by the appraised value of the property. A lower LTV means more equity and often better loan terms.
The process lenders use to confirm your earnings — typically through pay stubs, W-2s, and tax returns.
Confirmation of funds you have available for a down payment and closing costs, usually through bank statements.
Lenders typically want to see 2 years of stable employment. Gaps or recent job changes may require additional explanation.
Colorado Springs Mortgage Broker
Helping Front Range families finance their homes since 2005.
The upfront cash you pay toward the purchase price. The remainder is financed through your mortgage. VA loans allow 0% down; FHA requires 3.5%; conventional can be as low as 3%.
Fees paid at the closing of a real estate transaction, typically 2–5% of the loan amount. Includes lender fees, title insurance, appraisal, and prepaid items like taxes and insurance.
A fee charged by the lender for processing your loan application. Usually expressed as a percentage of the loan amount.
Upfront fees paid to the lender in exchange for a lower interest rate. One point equals 1% of the loan amount. Paying points can save money over the long term.
Insurance required on conventional loans when the down payment is less than 20%. Protects the lender if you default. Can be removed once you reach 20% equity.
The mortgage insurance required on FHA loans. Unlike PMI, MIP is typically required for the life of the loan if your down payment is less than 10%.
A one-time fee charged on VA loans to help fund the VA loan program. The amount varies based on your service type, down payment, and whether it's your first VA loan.
An account held by a third party (or your lender) to collect and pay property taxes and homeowner's insurance on your behalf. A portion of each mortgage payment goes into escrow.
An independent assessment of a property's market value, conducted by a licensed appraiser. Lenders require this to ensure the home is worth the loan amount.
A thorough examination of a home's condition by a licensed inspector. Not required by lenders, but strongly recommended for buyers to identify potential issues before closing.
Legal ownership of a property. A clear title means there are no outstanding claims, liens, or disputes against the property.
Insurance that protects against losses from title defects, liens, or ownership disputes that may arise after purchase. Lenders require a lender's policy; buyers can also purchase an owner's policy.
A legal claim against a property, often for unpaid debts. Liens must typically be resolved before a property can be sold or refinanced.
The difference between your home's current market value and the amount you still owe on your mortgage. Equity grows as you pay down your loan and as property values rise.
A condition in a purchase contract that must be met for the sale to proceed. Common contingencies include financing, inspection, and appraisal.
The process by which a lender evaluates the risk of lending to you. The underwriter reviews your credit, income, assets, and the property before approving the loan.
A document provided at least 3 business days before closing that outlines all final loan terms, monthly payments, and closing costs. Review it carefully.
A 3-page document provided within 3 business days of your loan application that outlines estimated loan terms, monthly payments, and closing costs.
An agreement between you and the lender that guarantees a specific interest rate for a set period (typically 30–60 days) while your loan is processed.
The final step in the home purchase process where ownership is transferred, documents are signed, and funds are distributed. Also called "settlement."
The legal document that transfers ownership of a property from the seller to the buyer. Recorded with the county after closing.
Your written promise to repay the mortgage loan under the agreed terms. This is the legal document that makes you responsible for the debt.
The release of loan funds at closing. The lender disburses the money to the seller (and other parties) to complete the purchase.
Ready to put this knowledge to work?
Check out our Tips for Buyers guide for practical advice on navigating the entire home purchase process.
Still Have Questions?
We're happy to explain anything in plain language — no jargon, no pressure.