Glossary
49 terms, in plain language.
Mortgage vocabulary is deliberately opaque, and being embarrassed to ask costs people real money. Nothing here assumes you already know what the last word meant.
Including the Texas-specific ones — MUD, PID, homestead exemption — that catch out everyone moving here.
A
- Adjustable-Rate MortgageARM
- A loan whose rate is fixed for an initial period — commonly five, seven or ten years — then adjusts periodically against an index. Cheaper at the start, uncertain later.See also: Fixed-Rate Mortgage, Index
- Amortization
- The schedule by which a loan is paid off. Early payments are mostly interest; the balance shifts toward principal over time, which is why paying extra early saves so much.Covered properly here
- Annual Percentage RateAPR
- The interest rate plus most lender fees, expressed as a single yearly figure. Designed to make loans comparable, though it assumes you keep the loan to term — which most people don't.
- Appraisal
- An independent valuation of the property, ordered by the lender. If it comes in below the purchase price, the lender lends against the lower figure and the gap becomes your problem to negotiate or cover.
- Appraisal Gap
- The difference between an appraised value and a higher contract price. In competitive markets, buyers sometimes agree in advance to cover a set amount of it.
B
- Bank Statement Loan
- A program that qualifies self-employed borrowers on 12–24 months of business deposits rather than tax returns. Useful when write-offs make taxable income look small.Covered properly here
- Buydown
- Paying up front to reduce the rate — either permanently (points) or temporarily (a 2-1 or 1-0 buydown, where the rate steps up over the first years). Frequently paid by a seller or builder.Covered properly hereSee also: Points
C
- Cash-Out Refinance
- Replacing your mortgage with a larger one and taking the difference in cash. Texas has specific rules and limits for cash-out on a homestead property.Covered properly here
- Clear to CloseCTC
- Underwriting has signed off and the file can proceed to signing. The point at which most of the anxiety ends.Covered properly here
- Closing Costs
- Fees to complete the transaction — lender charges, title, escrow, recording, survey. Typically 2–3% of the price, separate from your down payment.Covered properly here
- Closing DisclosureCD
- The final statement of your loan terms and costs. Federal rules require you to receive it at least three business days before closing, so you have time to check it.
- Conforming Loan
- A loan within the limits Fannie Mae and Freddie Mac will buy. The limit changes annually and varies by county; above it, you're in jumbo territory.See also: Jumbo Loan
- Conventional Loan
- A loan not insured by a government agency. The most common type, and generally the best option for borrowers with solid credit — including those on a visa.
D
- Debt-to-Income RatioDTI
- Your monthly debt payments as a percentage of gross monthly income. The single most important number in qualification, and usually the one that caps your price.Covered properly here
- Discount Points
- Prepaid interest — one point costs 1% of the loan and lowers the rate. Worth it only if you keep the loan long enough to recoup the cost.See also: Buydown
- Down Payment
- The portion of the price you pay in cash. Minimums start at 3% conventional, 3.5% FHA, 0% VA. Twenty percent avoids mortgage insurance; it has never been a requirement.Covered properly here
- DSCR Loan
- Debt Service Coverage Ratio. An investment-property loan qualified on the property's rent against its payment, rather than on your personal income or tax returns.Covered properly here
E
- Earnest Money
- A deposit made at contract to show you're serious, held by the title company and credited to you at closing. Typically 1–2% of the price.
- Escrow
- Two meanings. Before closing: a neutral third party holding funds and documents. After closing: the account your servicer uses to collect and pay your taxes and insurance monthly.
F
- FHA Loan
- Insured by the Federal Housing Administration. Lower credit and down payment requirements, but mortgage insurance that lasts the life of the loan above 90% LTV.Covered properly here
- Fixed-Rate Mortgage
- The rate never changes for the life of the loan. Predictable, and the default choice for most buyers.See also: Adjustable-Rate Mortgage
- Float
- Choosing not to lock your rate yet, betting it improves before closing. The opposite of locking, and a real decision rather than a default.
G
- Gift Funds
- Down payment money from a relative. Permitted and routine, including from overseas, provided it is genuinely a gift and properly documented.Covered properly here
H
- Homestead Exemption
- A Texas property tax benefit for your primary residence. Caps how fast your taxable value can rise and reduces school tax. You must file for it — the county will not do it for you.
I
- Index
- The published rate an adjustable loan moves with, such as SOFR. Your rate is the index plus a fixed margin.See also: Adjustable-Rate Mortgage, Margin
J
- Jumbo Loan
- A loan above the conforming limit. Stricter requirements, larger down payments, and pricing that moves independently of conventional rates.See also: Conforming Loan
L
- Loan EstimateLE
- A standardised three-page summary of your rate, payment and costs, due within three business days of applying. Designed so you can compare lenders line by line.
- Loan-to-ValueLTV
- The loan as a percentage of the property's value. Drives pricing, mortgage insurance, and whether certain programs are available at all.See also: Private Mortgage Insurance
- Lock
- Fixing your rate for a set period — commonly 30 to 60 days — so market moves don't affect you before closing. Longer locks cost more.
M
- Margin
- The fixed percentage added to the index on an adjustable loan. Unlike the index, it never changes.See also: Index
- Mortgage InsuranceMI
- Insurance protecting the lender, not you, required when you put down less than 20%. Conventional PMI falls away with equity; FHA MIP often does not.See also: Private Mortgage Insurance
- MUD
- Municipal Utility District. A levy on top of your property tax rate, funding infrastructure in newer developments. Common across Collin and Denton County and easy to overlook when comparing houses.See also: PID
O
- Origination Fee
- What a lender charges to process the loan, often 1% of the amount. Frequently zero on a broker file, because the wholesale lender pays the compensation instead.
P
- PID
- Public Improvement District. Like a MUD, an additional assessment funding local infrastructure. Sometimes payable as a lump sum rather than annually.See also: MUD
- PITI
- Principal, Interest, Taxes and Insurance — your actual monthly housing payment. In Texas the tax portion is large, which surprises people moving from lower-tax states.Covered properly here
- Points
- See Discount Points. One point is 1% of the loan amount.See also: Discount Points, Buydown
- Pre-Approval
- A lender has verified your income, assets and credit and will lend up to an amount. Meaningfully stronger than a pre-qualification, and what makes a competitive offer credible.Covered properly hereSee also: Pre-Qualification
- Pre-Qualification
- An estimate based on what you've said, without verification. Fine for orientation; not persuasive to a listing agent.See also: Pre-Approval
- Prepaids
- Money collected at closing for costs not yet due — the first year of insurance, prepaid interest, and the initial tax escrow. Your money, not a fee.Covered properly here
- Principal
- The amount you actually borrowed, as distinct from the interest charged on it.
- Private Mortgage InsurancePMI
- Mortgage insurance on a conventional loan. Removable — automatically at 78% LTV, or by request at 80%.See also: Mortgage Insurance, Loan-to-Value
R
- Refinance
- Replacing your existing mortgage with a new one — to lower the rate, change the term, or take cash out.Covered properly here
- Reserves
- Money left after closing, measured in months of payments. Some programs require it; strong reserves can offset a weaker ratio elsewhere.
S
- Seller Concession
- The seller agreeing to pay some of your closing costs. Ordinary in a market with inventory, and often worth more than shopping for a better rate.Covered properly here
- Survey
- A drawing of the property boundaries and structures. Texas transactions usually require a current one; the seller's existing survey is sometimes acceptable.
T
- Title Insurance
- Protection against defects in ownership history. In Texas the premium is set by the state, so every title company charges the same — shop lender fees instead.Covered properly here
U
- Underwriting
- The lender's review of your file against program guidelines. Conditions raised here are normal; almost every file gets them.Covered properly here
V
- VA Loan
- For eligible service members and veterans. No down payment, no monthly mortgage insurance, and typically the best rates available.Covered properly here
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