Mortgage Terms & Glossary

Navigating a home purchase involves a lot of specialized language, and I believe that clarity is the foundation of a “No-Surprise” closing. This glossary is designed to strip away the jargon and provide straightforward, tactical definitions of the terms you’ll encounter throughout your journey.

From the initial strategy session to the moment you receive your keys, my goal is to ensure you move forward with the expert advocacy and clear understanding you deserve.

Quick Jump:

A
B
C
D
E
F
G
H
I
L
M
N
P
Q
R
S
T
U
V
W

A

Aggregate Adjustment

A calculation at closing to ensure the lender isn’t holding more than the allowed amount in escrow for taxes/insurance.

Amortization

The schedule of payments showing how much goes toward interest vs. principal over time.

Appraisal

An unbiased professional opinion of a home’s value.

APR (Annual Percentage Rate)

The total cost of borrowing money yearly, including interest and fees.

ARV (After Repair Value)

The estimated future value of a property after all planned renovations are complete.

Assets

Bank accounts, stocks, or real estate used to qualify for a loan.

B

Balloon Payment

A large, lump-sum payment due at the end of a short-term investor loan.

Bank Statement Loan

A mortgage for self-employed borrowers qualified via deposits rather than tax returns.

Basis Point

A unit of measure for interest rate changes (1/100th of 1%).

C

Cash to Close

Total funds needed at closing (down payment + closing costs).

CLTV (Combined Loan-to-Value)

The ratio of all loans on a property (primary mortgage + second mortgages or HELOCs) compared to the property’s value.

Clear to Close

Final status indicating the underwriter has approved the loan for signing.

Closing Disclosure (CD)

The final document outlining actual terms and final costs of your mortgage.

D

Deed of Trust

The legal document in WA that secures your loan against the property.

Discount Point

Upfront fee to “buy down” your rate and lower your monthly payment.

Down Payment

The cash portion of the purchase price paid upfront.

DSCR (Debt Service Coverage Ratio)

Metric determining if rental income covers an investment’s mortgage cost.

E

Earnest Money

A good faith deposit held in escrow until closing.

Escrow

Neutral third-party account handling funds and documents.

F

Fannie Mae

GSE that buys mortgages to maintain market liquidity.

FHA Loan

Mortgage insured by the Federal Housing Administration.

FICO (Credit Score)

A summary of your credit risk based on your financial history, used by lenders to determine loan eligibility and interest rates.

Freddie Mac

GSE that supports the secondary mortgage market.

G

Ginnie Mae

Government corporation for FHA, VA, and USDA securities.

H

Hard Money

Asset-based financing ideal for property investors needing speed.

HUD

Department of Housing and Urban Development.

I

Interest Rate Lock

Lender guarantee to honor a specific rate while processing the loan.

L

Loan Estimate (LE)

Form outlining estimated costs upon mortgage application.

Loan-to-Value (LTV)

Ratio of borrowing amount compared to property value. (See CLTV for combined debt scenarios).

LTC (Loan to Cost)

Ratio of loan amount compared to total project cost.

M

Mortgage Insurance (MI)

Policy protecting the lender typically required with <20% down.

N

Non-QM Loan

Mortgage for borrowers who don’t fit standard guidelines.

P

Payoff Statement

Document showing total funds needed to close out a current loan.

Principal

The actual amount of money borrowed.

Q

QM Loan

Qualified Mortgage meeting specific federal affordability standards.

Quitclaim Deed

Fast way to transfer property (e.g., from personal to LLC).

R

Recasting

Paying a lump sum to lower payments without refinancing.

Refinance

Replacing a current mortgage with a new one.

RESPA

Federal law requiring transparent settlement cost disclosures.

Right of Rescission

Three-day cancellation period for equity loans/refinances.

S

Second Mortgage

Additional loan taken out against a property already mortgaged.

Securitization

Pooling debt to sell cash flows as securities.

Settlement Statement

Detailed ledger of all funds handled during closing.

T

Title Insurance

Policy protecting against defects in property ownership history.

TRID

Regulations ensuring transparent mortgage cost disclosures.

U

Underwriter

Financial expert reviewing documentation for final approval.

USDA Loan

Zero-down-payment mortgage for rural homebuyers.

V

VA Loan

$0 down payment mortgages for Service Members and Veterans.

W

1031 Exchange

Strategy allowing deferred capital gains taxes for property investors.

Terms are theoretical. Numbers are real.

Knowing the definition of ‘DSCR’ or ‘Par Rate’ is a great first step—seeing how they impact your actual monthly cash flow is the next. I specialize in building Custom Loan Blueprints that turn these definitions into a clear closing-day reality.

📝Fill out the form to the right (or below on mobile), and I’ll personally reach out to answer any questions you may have.

📥

The Homebuyer's "Pocket Pro" Cheat Sheet

Stop second-guessing the jargon. Download our one-page reference guide for ARV, DSCR, LTC, and DTI. Keep it on your phone or clipboard for your next property walkthrough.

No email required. Direct PDF download for Washington investors.

Want a local expert to help you find the right loan?

NMLS 1534892 | Pennington Lending Services Inc.

How Well Do you Know Your Definitions?

How do LTV and CLTV differ?

While LTV (Loan-to-Value) only measures your first mortgage against the property’s value, CLTV (Combined Loan-to-Value) accounts for every loan on the property, including second mortgages or HELOCs.

What’s the difference between a Pre-Qualification and a Pre-Approval?

A Pre-Qualification is a “ballpark” estimate based on information you provide verbally. A Pre-Approval is much more rigorous; it involves a formal review of your DTI (Debt-to-Income) , FICO score , and income documents. In a competitive market like Bothell or King County, a Pre-Qualification won’t get your offer looked at. You need a formal Pre-Approval to show sellers you have the “Trusted Mortgage Solutions” to actually close the deal.

Why is the "3-Day Rule" so important at the Closing Table?

Federal law (TRID/RESPA) requires that you receive and acknowledge your Closing Disclosure (CD) at least 3 business days before you are allowed to sign your final loan documents. This is a mandatory, non-negotiable waiting period. If you don’t sign that disclosure the moment it hits your inbox, your closing date will be pushed back. To meet your anticipated closing date and stay on schedule, you must hit this window perfectly.

How do DTI and LTV affect each other during a deal?

DTI (Debt-to-Income) and LTV (Loan-to-Value) are the two “levers” lenders pull to see how much they can safely lend you. DTI measures your income (can you afford the payment?), while LTV measures the asset (is the house worth enough to cover the loan?). They are independent but equally powerful. You could have a perfect 20% down payment (low LTV), but if your personal monthly debts are too high compared to your income (high DTI), you could still be denied. Conversely, you might have plenty of income to cover the loan, but if the property appraisal comes in low, your LTV will spike, potentially requiring you to bring more cash to the closing table to make the deal work.