Mortgage language should never be a barrier to a good decision. This glossary defines the terms you will meet in home and investment property financing, in plain English \u2014 43 terms and growing. Where a term connects to one of our loan programs, we link you straight to the deeper explanation.

Adjustable-rate mortgage (ARM)

A loan whose interest rate adjusts periodically after an initial fixed period, based on a market index plus a set margin.

After-repair value (ARV)

What a property should be worth once planned renovations are complete. Central to fix and flip loan sizing.

Amortization

The schedule by which loan payments gradually pay down principal over time, with early payments weighted toward interest.

Appraisal

An independent professional opinion of a property\u2019s market value, ordered during underwriting.

Asset depletion

A qualifying method that converts savings and investments into monthly income for loan approval. See asset depletion loans.

Bank statement loan

A Non-QM loan qualifying self-employed borrowers on 12-24 months of bank deposits instead of tax returns. See bank statement loans.

Bridge loan

Short-term financing that carries a borrower between transactions \u2014 commonly acquisition-to-sale or acquisition-to-refinance.

Cash-out refinance

A refinance for more than the current balance, converting home equity into cash. Texas homesteads follow special 50(a)(6) rules.

Certificate of Eligibility (COE)

The VA document proving a veteran\u2019s entitlement to use the VA loan benefit.

Closing costs

The transaction fees paid to finalize a loan \u2014 title, appraisal, escrow setup, recording, and lender charges.

Closing disclosure (CD)

The final federally required statement of loan terms and costs, delivered before closing.

Conforming loan

A conventional loan within the loan limits set annually by the FHFA and eligible for purchase by Fannie Mae or Freddie Mac.

Conventional loan

A mortgage following Fannie Mae/Freddie Mac guidelines without government insurance. See conventional loans.

Debt service coverage ratio (DSCR)

Monthly rental income divided by the property\u2019s full monthly payment. The basis of DSCR loans \u2014 try our DSCR calculator.

Debt-to-income ratio (DTI)

Your monthly debt payments divided by gross monthly income \u2014 the affordability test in traditional lending.

Down payment

The portion of the purchase price you pay upfront. Assistance programs can help \u2014 see down payment assistance.

Draw schedule

The staged release of construction or renovation funds as work is completed and inspected.

Earnest money

A good-faith deposit made with an offer, credited toward your purchase at closing.

Entitlement (VA)

The dollar amount of a veteran\u2019s VA loan guarantee \u2014 restorable and, in some cases, reusable on multiple loans.

Equity

The difference between a property\u2019s value and what is owed on it \u2014 the wealth component of ownership.

Escrow

Funds held by a neutral party: your earnest money before closing, and your tax/insurance reserves after.

Fixed-rate mortgage

A loan whose interest rate never changes for the life of the loan.

Funding fee (VA)

The one-time VA charge that replaces mortgage insurance; exempt for many disabled veterans.

Hard money

Short-term, asset-based financing priced for speed and flexibility, typically from private capital.

HOA dues

Homeowners association charges \u2014 counted in the payment when calculating DSCR.

Jumbo loan

A loan exceeding conforming limits, underwritten to lender-specific standards. See jumbo loans.

Loan-to-value ratio (LTV)

The loan amount divided by property value \u2014 the lender\u2019s measure of equity cushion.

Mortgage insurance

Coverage protecting the lender on lower-equity loans; removable on many conventional loans, typically permanent on FHA.

Net operating income (NOI)

A commercial property\u2019s income after operating expenses, before debt service \u2014 the heart of commercial underwriting.

Non-QM loan

A fully underwritten mortgage using alternative documentation outside the Qualified Mortgage framework. See Non-QM loans.

PITIA

Principal, interest, taxes, insurance, and association dues \u2014 the complete monthly payment used in DSCR math.

Points

Optional upfront charges paid to adjust loan pricing; one point equals 1% of the loan amount.

Pre-approval

A lender\u2019s conditional commitment after reviewing documentation \u2014 stronger than pre-qualification.

Pre-qualification

An initial estimate of what you may borrow, based on stated information.

Principal

The amount borrowed, and the balance your payments reduce over time.

Rate lock

An agreement holding your quoted pricing for a set period while your loan closes.

Rent roll

The income inventory of a rental property or portfolio \u2014 units, tenants, leases, and rents.

Reserves

Liquid funds remaining after closing, measured in months of payments \u2014 scrutinized closely on jumbo and investor loans.

Seasoning

The time an account, fund source, or credit event must age before a guideline accepts it.

Short-term rental income

Airbnb/VRBO-style revenue \u2014 usable in many modern DSCR programs via market analysis or booking history.

Title insurance

Protection against defects in a property\u2019s ownership history; separate lender and owner policies exist.

Underwriting

The lender\u2019s verification and risk review that turns an application into an approval.

Vesting

How ownership is held on title \u2014 personally, jointly, or through an entity such as an LLC.

Missing a term you ran into? Ask us \u2014 we will answer you directly and add it here. For federal consumer definitions, the CFPB\u2019s key terms glossary is an excellent independent companion.