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Mortgage language can make a straightforward goal feel complicated. Use this glossary as a starting point, then ask how a term applies to your actual transaction.
The interest rate helps determine borrowing cost, while APR is a broader annualized measure that includes certain finance charges. Neither alone describes taxes, insurance or every cash requirement.
DTI compares qualifying monthly debts with qualifying gross monthly income. The calculation and acceptable level vary by program and underwriting findings.
LTV compares a loan amount with the property's applicable value. It can affect pricing, mortgage insurance and available program choices.
An escrow account commonly collects part of anticipated property taxes and insurance with the mortgage payment. Required amounts can change as those expenses change.
Principal is the outstanding amount borrowed. Interest is the charge for borrowing under the loan terms. A monthly principal-and-interest payment is therefore different from the full housing payment, which may also include taxes, insurance, mortgage insurance and other costs. Read the payment fields on the Loan Estimate rather than assuming one advertised number includes every item.
Discount points are charges associated with the offered rate. A credit can reduce particular closing amounts while being associated with different pricing. Compare the rate and closing costs together over the period you expect to keep the loan. APR is a broader cost measure that incorporates the interest rate and certain charges under its calculation rules; it is not the same as the monthly payment.
Cash to close is the amount needed to complete the transaction after the applicable down payment, closing items, deposits and credits are accounted for. It differs from total closing costs. Prepaid expenses pay items such as interest or insurance for a specified period, while an initial escrow deposit funds an account for designated future bills.
Occupancy describes the intended use of the property, such as primary residence, second home or investment. That use must be disclosed accurately because different programs apply different conditions. A financing structure appropriate for a rental property should not be presented as unrestricted financing for a home you intend to occupy.
Reserves are eligible funds available after closing under the program’s method. An appraisal supports a value conclusion; an independent inspection examines condition for the buyer. A title review concerns ownership and relevant interests or liens. These reviews answer different questions and should not be described as interchangeable.
A rate lock concerns specified pricing and a period, subject to its terms. A preapproval reflects the facts and records reviewed at that stage. Final approval and the ability to close still depend on the complete transaction and remaining conditions. A balloon payment is a substantial amount due at the end of a loan structure; an interest-only period does not by itself mean the debt has been reduced.
DSCR compares accepted property rent with the housing payment defined by an eligible investor program. It is different from DTI, which compares qualifying borrower debt obligations with qualifying income. Neither calculation alone establishes an approval or the borrower’s complete household budget.
No. Cash to close incorporates additional items such as the down payment, deposits and applicable credits. Compare the separate fields on the transaction disclosures.
Mortgage insurance generally protects the mortgage creditor against specified losses, not the borrower’s personal payment obligation. Review the applicable coverage and cost; it does not replace making the required payments.
General information is useful. A mortgage professional can help you evaluate the facts that apply to you.
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