MORTGAGE GLOSSARY
Home loan terms, in plain language
Mortgage paperwork is full of jargon. Here is what the common terms mean, with Florida specifics where they matter. Definitions are general information, not a loan offer or advice for your situation.
A
- Adjustable-rate mortgage (ARM)
- A loan whose interest rate is fixed for an initial period, such as 5 or 7 years, and then adjusts at set intervals based on a market index. Your payment can rise or fall after the fixed period ends.
- Amortization
- How a loan is paid off over time through scheduled payments. Early payments are mostly interest; later payments are mostly principal.
- Annual percentage rate (APR)
- A yearly measure of a loan's cost that includes the interest rate plus certain fees and charges. It helps compare loan offers, but it is not the same as your interest rate.
- Appraisal
- An independent estimate of a property's market value, ordered by the lender. The loan amount is based on the lower of the appraised value or the purchase price.
B
- Balloon payment
- A large lump sum due at the end of a loan term, common in commercial loans that amortize over a longer period than the loan term. Borrowers usually pay it off by refinancing or selling.
C
- Cash-out refinance
- A new, larger loan that pays off your existing mortgage and gives you the difference in cash, using your home equity. You take on a bigger balance, so the payment and closing costs usually change.
- Closing costs
- Fees and prepaid items due when a loan closes, such as title charges, lender fees, taxes and insurance. In Florida they include documentary stamp and intangible taxes on the mortgage. Florida closing costs guide.
- Closing Disclosure
- A form that lists the final loan terms and closing costs. Lenders must provide it at least three business days before closing so you can compare it to your Loan Estimate.
- Commercial mortgage
- A loan secured by income-producing or business property, such as apartment buildings, retail, office, industrial or mixed-use. Lenders weigh the property's income and the borrower's strength. Commercial loan checklist.
- Conforming loan
- A loan that meets the size limits and guidelines set by Fannie Mae and Freddie Mac. Loans above those limits are called jumbo loans.
- Conventional loan
- A mortgage that is not insured or backed by a government agency such as the FHA, VA or USDA. Most conventional loans follow Fannie Mae and Freddie Mac guidelines.
- Credit score
- A number, usually from 300 to 850, that summarizes your credit history. Lenders use it to help decide whether to approve a loan and what terms to offer.
D
- Debt service coverage ratio (DSCR)
- A rental property's income divided by its debt payments. A ratio of 1.00 means the rent just covers the payment; investors' DSCR loans are qualified on this ratio rather than on personal income. DSCR loans guide.
- Debt-to-income ratio (DTI)
- Your total monthly debt payments, including the new mortgage, divided by your gross monthly income. Lenders use it to judge whether you can comfortably afford the payment. DTI calculator.
- Discount points
- Optional upfront fees paid to lower your interest rate. One point is 1% of the loan amount. Whether points pay off depends on how long you keep the loan.
- Documentary stamp tax
- A Florida tax on documents that transfer property or create debt. On a mortgage the tax is $0.35 per $100 of the loan amount, paid by the borrower on a purchase loan. On a deed it is usually $0.70 per $100 of the price, customarily paid by the seller.
- Down payment
- The part of the purchase price you pay up front and do not borrow. Programs range from 0% (VA, USDA) to 3.5% (FHA) to 20% or more for some conventional and investment loans.
E
- Earnest money deposit
- A deposit you give when you sign a purchase contract to show you are serious. It is usually applied toward your down payment or closing costs at closing.
- Equity
- The part of your property you own: its value minus what you owe on it. Equity grows as you pay down the loan and as the property's value rises.
- Escrow
- An account held by the lender or a neutral party. At closing it can hold deposits and funds; afterward, an escrow account may collect part of each payment for property taxes and homeowners insurance.
F
- FHA loan
- A mortgage insured by the Federal Housing Administration, with lower minimum credit scores and down payments of as little as 3.5%. It includes an upfront and a monthly mortgage insurance premium.
- Fixed-rate mortgage
- A loan whose interest rate stays the same for the whole term, so your principal-and-interest payment does not change. Taxes and insurance can still change your total payment.
- Flood insurance
- Coverage for flood damage, which standard homeowners policies exclude. Lenders require it when the property is in a high-risk flood zone, and many Florida owners carry it elsewhere too.
- Four-point inspection
- A Florida insurance inspection of a home's roof, electrical, plumbing and heating and cooling systems. Insurers often ask for one on older homes.
H
- Homeowners association (HOA)
- An organization that manages a community and charges dues. Lenders count HOA dues in your monthly housing payment, and condo associations can also levy special assessments.
- Homeowners insurance
- Coverage for your home and belongings against damage and liability. Lenders require it, and in Florida it is often the largest prepaid cost at closing, so quote it early.
- Homestead exemption
- A Florida property tax benefit for your primary residence that lowers its taxable value, along with a cap on yearly increases in assessed value. You apply through your county property appraiser, and the rules and amounts are set by state law.
I
- Intangible tax
- A Florida tax on the mortgage amount at closing. It is 2 mills, or 0.2% of the loan, so a $320,000 loan has $640 of intangible tax.
- Interest-only loan
- A loan where you pay only interest for an initial period, so the payment is lower at first. Later the payment rises because you must start repaying principal.
J
- Jumbo loan
- A mortgage larger than the conforming loan limit. Jumbo loans are not eligible for purchase by Fannie Mae or Freddie Mac, so lenders often use stricter requirements.
L
- Lien
- A legal claim on a property as security for a debt. A mortgage creates a lien that is removed when the loan is paid off.
- Loan Estimate
- A three-page form lenders give you within three business days of applying. It shows the estimated rate, payment and costs so you can compare offers.
- Loan-to-value ratio (LTV)
- The loan amount divided by the property's value. A $240,000 loan on a $300,000 home is 80% LTV. Lower LTV usually means better terms and may avoid mortgage insurance.
M
- Mortgage broker
- A licensed professional who compares loan programs from multiple wholesale lenders, helps you choose one, and manages the application through closing. A broker is not the lender. Read our FAQ.
- Mortgage insurance (PMI)
- Insurance that protects the lender when you put down less than 20% on a conventional loan. Private mortgage insurance can usually be removed once you reach enough equity. FHA loans carry their own premiums.
N
- NMLS ID
- A unique identifier in the Nationwide Multistate Licensing System for licensed mortgage companies and loan officers. You can verify any NMLS ID at NMLS Consumer Access.
O
- Origination fee
- A lender or broker charge for processing and underwriting a loan, often quoted as a percentage of the loan amount. It appears on your Loan Estimate.
- Owner's title insurance
- A one-time policy that protects the buyer against ownership claims and title defects. In Florida the premium is set by state rate schedules, and who pays it varies by county and by the contract.
P
- PITI
- Principal, interest, taxes and insurance: the four parts of a typical monthly mortgage payment. Lenders may add HOA dues and mortgage insurance.
- Pre-approval
- A lender's review of your income, assets and credit, resulting in a written estimate of what you may be able to borrow. It is stronger than a pre-qualification but is not a final loan commitment.
- Pre-qualification
- A quick estimate of what you may be able to borrow, based on information you provide. It is a helpful first step but is not an approval. Get pre-qualified.
- Prepaids
- Costs you pay in advance at closing, such as interest from closing day to month-end, a year of homeowners insurance, and a starting escrow balance for taxes and insurance.
- Prepayment penalty
- A fee charged if you pay off a loan, or a large part of it, early. It is common on investment and commercial loans, often declining over the first several years. Always ask for the schedule.
- Principal
- The amount you borrow, and the part of each payment that reduces your loan balance.
R
- Rate lock
- An agreement that holds your interest rate and terms for a set period, usually 30 to 60 days, while your loan is processed. It protects you if market rates rise and may limit benefit if they fall.
- Rate-and-term refinance
- A new loan that replaces your current one to change the interest rate, the term, or both, without taking cash out. Refinance break-even calculator.
- Reserves
- Liquid funds you have left after closing, often counted in months of mortgage payments. Investment and commercial loans commonly require several months of reserves.
T
- Title insurance
- Insurance that protects you or the lender against problems with the property's title, such as liens or ownership claims. A lender's policy protects the lender; an owner's policy protects the buyer.
- Title search
- A review of public records to confirm who owns a property and whether any liens or claims exist. It is done before closing.
U
- Underwriting
- The lender's review of your income, assets, credit and the property to decide whether to approve a loan. The underwriter may ask for more documents before a final decision.
- USDA loan
- A zero-down-payment mortgage backed by the U.S. Department of Agriculture for eligible rural areas, with household income limits.
V
- VA loan
- A mortgage backed by the Department of Veterans Affairs for eligible veterans, service members and some surviving spouses. It often allows no down payment and no monthly mortgage insurance; a funding fee usually applies.
W
- Wind mitigation inspection
- A Florida inspection that documents a home's storm-protection features, such as roof shape, roof-to-wall connections and window protection. Insurers may offer premium discounts based on the report.
Questions about a term?
Talk to a licensed loan officer. No obligation, and no credit check for the first conversation.