Mortgage glossary
Short definitions, a worked example with real numbers, and what each term means for a South Florida purchase.
2
- 2-1 Buydown A temporary buydown is a seller- or builder-funded subsidy that covers part of the borrower's interest for the first one to three years. The note rate never changes; the escrowed subsidy makes up the difference each month, and any unused balance is applied to the loan if you refinance or sell early.
A
- ARV (After-Repair Value) ARV is a forward-looking appraisal value that assumes the renovation is finished to the described scope. It drives the maximum loan on a renovation loan and the profit math on a flip.
- Annual Percentage Rate (APR) The annual percentage rate (APR) is a standardized number required by federal Truth in Lending rules that combines the interest rate with prepaid finance charges so borrowers can compare offers. It is always equal to or higher than the note rate.
- Appraisal A mortgage appraisal estimates market value by comparing the subject property with recent sales of similar homes nearby, adjusted for differences in size, condition, location and features. The appraiser works for the lender, not the buyer or seller, and is assigned through a neutral process.
- Appraisal Gap The appraisal gap is the shortfall between contract price and appraised value. An 'appraisal gap guarantee' is a clause in which the buyer promises in advance to pay up to a set amount above the appraisal to win a competitive offer.
B
- Bank Statement Loan A bank statement loan documents income with deposits rather than tax forms. Lenders total eligible deposits over 12 or 24 months, apply an expense factor for business accounts, and divide by the number of months to get qualifying monthly income.
- Bridge Loan A bridge loan 'bridges' the gap between buying and selling. It is secured by the current home, the new home, or both, and is designed to be paid off in months, not years.
C
- Cash-Out Refinance A cash-out refinance converts home equity into cash by borrowing more than you currently owe. The new loan pays off the old one, pays closing costs, and the remainder is wired to you. Lenders cap the new loan at a maximum LTV that is lower than for a purchase.
- Clear to Close (CTC) Clear to close is the milestone between underwriting and closing. It means the file is fully approved subject only to standard closing conditions, such as signing the documents, a final credit refresh and funds arriving at the title company.
- Closing Disclosure (CD) The Closing Disclosure is the final TRID disclosure that states what you will pay and what you will owe on your mortgage. Receiving it starts a mandatory 3-business-day waiting period before the loan can close.
- Condo Questionnaire The condo questionnaire (Fannie Mae Form 1076 / Freddie Mac Form 476 or a lender's own version) documents project eligibility. The association usually charges a fee to complete it and takes several days to two weeks.
- Condotel (Condo-Hotel) A condotel (condo-hotel) combines individual unit ownership with hotel operations. Owners may use the unit part of the year and place it in the rental program the rest; the operator keeps a share of the revenue.
- Conforming Loan Conforming means the loan can be sold to Fannie Mae or Freddie Mac because it fits their loan limit and their guidelines on credit, income, assets and property. Conforming loans usually carry the most competitive pricing among conventional loans.
D
- Debt Service Coverage Ratio (DSCR) The debt service coverage ratio compares the income a rental property produces with the debt payment it must cover. A DSCR of 1.00 means rent exactly equals the payment; above 1.00 the property covers itself with room to spare, below 1.00 it runs at a shortfall.
- Debt-to-Income Ratio (DTI) Debt-to-income ratio (DTI) measures how much of your gross monthly income goes to debt payments, including the new mortgage. Lenders use it to judge whether you can afford the loan; the CFPB notes that different loan products and lenders set different DTI limits.
E
- Escrow An escrow account is a holding account managed by a neutral party. Before closing it protects the buyer's deposit; after closing it is how the lender makes sure property taxes and insurance get paid on time.
F
- FHA Mortgage Insurance Premium (MIP) The FHA mortgage insurance premium (MIP) funds the insurance that lets FHA lenders accept 3.5% down payments and lower credit scores. It has an upfront piece (UFMIP) and a monthly piece that is part of your payment.
- Florida Documentary Stamp Tax Documentary stamp tax ('doc stamps') is Florida's transfer and recording tax under Chapter 201, Florida Statutes, collected by the clerk of court when the deed and mortgage are recorded. It is one of the largest closing costs in a Florida transaction.
- Florida Homestead Exemption The homestead exemption is a Florida property tax benefit for owners who make the home their permanent residence as of January 1. It lowers the taxable value and triggers the annual assessment cap; it is not automatic and must be applied for.
- Florida Intangible Tax (Mortgage) The intangible tax on mortgages is a Florida excise tax on the debt obligation secured by real property, charged once at recording. It is separate from, and in addition to, the documentary stamp tax on the note.
- Foreign National Loan Foreign national loans are non-QM or portfolio mortgages for non-U.S. residents buying second homes or investment properties. They qualify on foreign income documented by an accountant or employer, on assets, or on the property's rent (DSCR).
G
- Gift Letter A gift letter identifies the donor, their relationship to you, the dollar amount, the property address and the statement that no repayment is expected. Most programs allow gifts from relatives, and some from close friends, employers or domestic partners.
H
- HELOC (Home Equity Line of Credit) A HELOC turns home equity into a flexible credit line, like a credit card secured by real estate. The lender sets a maximum combined loan-to-value (CLTV) for the first mortgage plus the line, and the line can be drawn, repaid and redrawn during the draw period.
- Hard Money Loan Hard money (private money) lending is secured by real estate and priced for speed and flexibility. Lenders size the loan as a percentage of purchase price, of total project cost, or of after-repair value, and expect to be repaid from a sale or a long-term refinance.
I
- ITIN (Individual Taxpayer Identification Number) The ITIN is a tax processing number, not a work or immigration document. For mortgage purposes it allows a lender to pull credit, verify filed tax returns and document the borrower's identity when no SSN exists.
J
- Jumbo Loan Jumbo (non-conforming) loans finance amounts above the agency limit. They are held by banks or sold to private investors, so documentation tends to be fuller and reserve requirements higher than on conforming loans.
L
- Loan Estimate (LE) A Loan Estimate is the early disclosure of loan terms and costs required under TRID. It is an estimate, not a commitment, but certain fees on it cannot increase at closing without a valid reason.
- Loan-to-Value Ratio (LTV) Loan-to-value (LTV) expresses how much of the property you are financing versus how much equity you have. Combined LTV (CLTV) adds any second mortgage or HELOC to the first loan.
M
- Milestone Inspection (Florida SB 4-D) The milestone inspection, created by Senate Bill 4-D after the 2021 Surfside collapse, is a licensed architect's or engineer's review of a condo building's structural condition. It has two phases: a visual phase one, and a deeper phase two only if substantial structural deterioration is found.
N
- Non-QM Loan Non-QM (non-qualified mortgage) loans are made by lenders who verify ability to repay in ways other than the standard agency method. They are held in portfolio or sold to private investors, and priced for the added flexibility.
- Non-Warrantable Condo Warrantable means the condo project can be 'warranted' to the agencies as meeting their guidelines. Non-warrantable projects are financed by portfolio banks, credit unions and non-QM lenders using their own standards.
P
- PITI (Principal, Interest, Taxes, Insurance) PITI is the total monthly housing payment: principal (the part that reduces the loan balance), interest (the lender's charge), property taxes and homeowners insurance, usually collected into an escrow account. When there is an HOA or mortgage insurance, lenders call the total PITIA.
- Pre-Approval A pre-approval is a conditional commitment based on verified documents, subject to an acceptable property, appraisal and title, and to no changes in your finances. It typically lists the maximum price, loan type, down payment and expiration date.
- Pre-Qualification Pre-qualification is the first screening step: the loan officer runs your stated numbers through program guidelines to estimate a price range and identify likely programs. Nothing is verified, so the result can change once documents are reviewed.
- Private Mortgage Insurance (PMI) Private mortgage insurance (PMI) is required on most conventional mortgages with a loan-to-value above 80%. It is paid monthly, as a single upfront premium, or built into a slightly higher rate (lender-paid PMI).
R
- Rate Lock A rate lock fixes the interest rate and price of your loan for a defined period so that daily market movement does not change your payment before closing. Longer locks cost more than shorter ones because the lender takes on more market risk.
- Rate-and-Term Refinance A rate-and-term (or 'no cash-out') refinance changes the interest rate, the loan term or the loan type without increasing the balance beyond the payoff plus closing costs. It is priced better than a cash-out refinance and allows higher LTVs.
- Reserves (Months of Reserves) Reserves are a cushion that shows the lender you can keep paying if income is interrupted. They are verified from bank, brokerage and retirement statements, and must remain after all funds for closing are accounted for.
S
- Save Our Homes Cap The Save Our Homes (SOH) cap limits annual increases in assessed value for homestead property, regardless of how fast market value rises. The gap between market (just) value and capped assessed value is the SOH benefit, which resets when the property sells.
- Seasoning Seasoning requirements exist so lenders can trust that assets are really yours, that a property's value is real, and that a borrower has recovered from a credit event. The specific periods depend on the program and the lender.
- Seller Concession A seller concession shifts part of the buyer's cash-to-close burden onto the seller, usually in exchange for a full-price or higher offer. Lenders call them interested-party contributions and limit them so the price is not inflated.
- Special Assessment A special assessment is a mandatory, one-time (or installment) charge approved by an association board or membership to fund costs the regular budget and reserves cannot cover. Unpaid assessments become a lien on the unit.
- Streamline Refinance A streamline refinance reuses the original loan's approval to shorten underwriting. Because the government already insures or guarantees the loan, the lender can skip the appraisal and much of the income review, as long as the borrower has paid on time and the new loan lowers the rate or payment.
- Structural Integrity Reserve Study (SIRS) The SIRS identifies the structural components of a condo building, estimates their remaining useful life and replacement cost, and sets the reserve funding the association must collect. It pairs with the milestone inspection under Florida's post-Surfside condo safety law.
T
- TRID (TILA-RESPA Integrated Disclosure) TRID ('Know Before You Owe') standardizes mortgage cost disclosures and their timing so borrowers can compare offers and are not surprised at closing. It applies to most closed-end consumer mortgages; HELOCs and most business-purpose investor loans follow different rules.
- Title Insurance Title insurance indemnifies the insured against covered title defects that existed before the policy date, and pays legal costs to defend the title. Unlike other insurance, it is paid once at closing with no renewal premium.
U
- Underwriting Underwriting is the lender's risk assessment of the borrower and the property. It combines an automated underwriting system decision with a human underwriter who reviews documents, calculates income and DTI, and issues conditions that must be satisfied before closing.
V
- VA Certificate of Eligibility (COE) The COE is VA's confirmation of a veteran's, service member's or eligible surviving spouse's entitlement to the home loan guaranty. It lists the entitlement code, any entitlement already used, and whether the borrower is exempt from the VA funding fee.
- VA Funding Fee The funding fee is the VA loan program's cost to the borrower, calculated as a percentage of the loan amount and usually financed into the loan. It replaces PMI; VA loans have no monthly mortgage insurance.
- VA IRRRL (Interest Rate Reduction Refinance Loan) An IRRRL is a VA-to-VA refinance designed to reduce the interest rate or move to a stable payment. It reuses the veteran's existing VA entitlement, so no new Certificate of Eligibility is usually needed, and closing costs can be financed into the loan.
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