Reference
Plain-language definitions for the mortgage jargon you’ll run into. Every term you click links back here from the calculators.
The total cost of a loan including fees, expressed as an annualized rate.
APR rolls your interest rate together with most upfront loan costs (origination, points, mortgage insurance) into a single annualized number, so you can compare loans with different fee structures. APR is always ≥ the note rate. A 6.5% rate with $5,000 of fees might be 6.7% APR.
A mortgage whose rate is fixed for an initial period, then adjusts periodically.
Common: 5/1 (5 yrs fixed, then adjusts every year), 5/6 SOFR (5 yrs fixed, then every 6 months). Adjustments are limited by caps: initial cap (max first jump), periodic cap (max each subsequent jump), lifetime cap (max total over the loan's life). Use the Mortgage calculator's ARM mode to model these scenarios.
What you originally paid for an asset, plus capital improvements — used to calculate gain on sale.
For a home, basis = purchase price + closing costs + capital improvements (kitchen remodel, new roof, addition). Routine maintenance doesn't increase basis. When you sell, your capital gain = sale proceeds − basis. The Section 121 exemption lets primary-residence sellers exclude up to $250k single / $500k MFJ of that gain.
A rental property's annual NOI divided by its purchase price.
Quick measure of unlevered yield. NOI is rent minus all operating expenses (taxes, insurance, maintenance, management) — but NOT mortgage payments. Cap rate ≥7% is generally considered good in most US markets; ≤5% is thin. Varies hugely by region: Bay Area normal at 4%; Cleveland/Memphis at 8%+. Use the Investment Property Analyzer to compute it for your scenario.
A rental's annual pre-tax cash flow divided by total cash invested.
Unlike cap rate, this includes the impact of leverage (the mortgage). Annual cash flow = NOI minus debt service. Cash invested = down payment + closing costs. ≥8% cash-on-cash beats most stock market index returns. Computed in the Investment Property Analyzer.
All loans secured by your home divided by the home's value.
If you have a $300k first mortgage and a $50k HELOC on a $500k home, your CLTV is ($300k + $50k) ÷ $500k = 70%. Lenders cap CLTV: cash-out refi typically 80%, HELOC 85% (some 90-95%). The Home Equity calculator shows your borrowable equity at any CLTV cap.
All fees paid at closing to originate the loan and transfer ownership.
Lender fees (origination, application, underwriting), third-party fees (title insurance, appraisal, settlement, recording), government fees (transfer taxes), and prepaids (interest from close date through end of month, tax/insurance escrow). Typically 2-5% of price, higher in high-tax states. The Closing Cost Estimator breaks them down line-by-line.
The 5-page final accounting of your loan and closing, delivered ≥3 days before closing.
Required by TRID. Lists final loan terms, all fees, cash to close. Compare against the earlier Loan Estimate (LE) to spot changes — some line items can change freely (your choice), some can change up to 10% (lender-shoppable), and some can't change at all without re-disclosure (lender-set fees). Big changes restart the 3-day clock.
A mortgage that meets Fannie Mae / Freddie Mac size and underwriting standards.
2026 baseline conforming loan limit is ~$806,500 for a 1-unit home (varies by county; up to ~$1.21M in high-cost areas). Loans above this are "jumbo" and have different (often stricter) underwriting and pricing. Conforming loans get the best rates because GSEs buy and securitize them.
Optional upfront fee paid to lower your rate. 1 point = 1% of the loan.
Typically lowers rate by ~0.25% per point, though the exact tradeoff varies daily with market pricing. Worth it if you'll hold the loan past the break-even point (usually ~5-8 years). Tax wrinkle: on a refinance, points must be amortized over the loan life (not deducted in year 1 like on a purchase).
Rental NOI divided by annual mortgage payments — measures whether the property pays for itself.
DSCR ≥1.25 typically qualifies for non-QM DSCR loans (lender uses property income, not your W-2). DSCR <1.0 means the rental doesn't cover its debt service. Most lenders use PITIA in the denominator (P&I + tax + insurance + HOA), not pure P&I — so your "true" qualifying DSCR is usually lower than the simple version.
Your monthly debts divided by your gross monthly income.
Front-end DTI = housing payment alone (PITI) ÷ income. Back-end = (PITI + all other debts) ÷ income. Lenders qualify on back-end. Typical caps: Fannie 43% (sometimes 45-50% with compensating factors), FHA 43% standard / 50% with strong file, QM rule 43%. CFPs generally suggest staying well under those: 28% front / 36% back. The DTI Scenario Planner handles edge cases like deferred student loans.
A good-faith deposit you make when an offer is accepted, held in escrow.
Typically 1-3% of contract price, can be 5-10% in competitive markets. Applied to your down payment / closing costs at closing. Forfeited if you back out of the contract without using a contingency (financing, inspection, appraisal). The Appraisal Gap Planner uses your EMD percentage to compute the cost of walking away.
A separate account your lender uses to pay your property taxes and insurance on your behalf.
Each month a portion of your payment goes into escrow; the lender pays the bills when due. Required if your LTV is >80%. Annual "escrow analysis" reconciles actual expenses vs collected. Shortages = lump-sum payment or higher monthly payment next year. The Closing Cost Estimator includes the upfront escrow deposit (typically 3 months of taxes + 14 months of insurance).
A government-insured mortgage with low down (3.5%) and lenient credit requirements.
Backed by the Federal Housing Administration. Down as low as 3.5% with 580+ FICO. Costs more than conventional via two layers of mortgage insurance: 1.75% upfront (UFMIP, financed in) and 0.55% annual (MIP). For most FHA loans with <10% down originated after June 2013, MIP lasts the LIFE of the loan — only escape is refinancing to conventional. With ≥10% down, MIP cancels after 11 years.
For an ARM: the index value plus the margin — the rate you'd adjust to today.
Modern ARMs use SOFR as the index (recently ~4.5%). Your loan note specifies your margin (typically 2-3%). Index + margin = fully-indexed rate. ARM caps may keep the actual adjusted rate below the fully-indexed rate at first, but it'll drift up over subsequent adjustments. Used as the "adjusted rate" input in the Mortgage and Refinance calculators.
Money from a family member (or other approved donor) that can be used for down payment.
Conventional accepts gifts from family members and now allows 100% gift on primary AND second homes (the old 5% borrower-contribution rule was eliminated by Fannie in April 2021). FHA accepts family + employers + charities + close friends with documented interest. VA accepts any non-interested party. Investment property: no gifts allowed for conventional. Use the Gift Funds Wizard for required documentation.
Federal law requiring lenders to auto-cancel PMI at 78% LTV based on the original schedule.
The 78% trigger is based on your scheduled balance vs your original property value — extra payments don't accelerate auto-cancel. You can also request cancellation when you reach 80% LTV via amortization, or pay for an appraisal and request at 80% of current value (Fannie servicer rule: 75% if 2-5 yrs old, 80% if ≥5 yrs). HPA does NOT apply to most FHA loans (life of loan MIP).
A revolving credit line secured by your home; rate is variable.
Two phases: a draw period (typically 10 yrs) where you can borrow as needed and make interest-only payments, then a repayment period (usually 10 more yrs) when you pay back principal + interest. Rate = Prime + margin, can rise. Closing costs typically low ($0-$500). Compare to cash-out refi and HELOAN in the Cash-Out vs HELOC calculator.
A fixed-rate, fixed-term second mortgage paid out as a lump sum.
Sometimes called a "second mortgage." Like a HELOC but the rate is fixed and you get the full amount up front. Predictable payments. Useful when you know exactly how much you need (vs HELOC's flexibility). Same first mortgage stays untouched.
A mortgage above the conforming loan limit.
2026 baseline conforming limit is ~$806,500 (higher in high-cost counties). Jumbos have stricter underwriting (often 20%+ down, 700+ FICO) and slightly higher rates. Some jumbo lenders are competitive; others price aggressively. Not eligible for sale to Fannie/Freddie.
Fannie Mae / Freddie Mac surcharge for risk factors like credit score, LTV, property type.
Posted as a percentage of loan amount, paid as upfront fee or rolled into a higher rate. Worst LLPAs hit borrowers with low FICO + high LTV. Can change with policy: in 2023 Fannie waived LLPAs for first-time buyers ≤100% AMI. Cash-out refi, condos, manufactured homes, second homes, and investment properties all add LLPAs on top. The Credit Score LLPA Impact calculator shows your dollar cost.
The 3-page standardized loan summary you receive within 3 days of applying.
Required by TRID. Shows interest rate, monthly payment, all costs, cash to close. Lender must honor most of these numbers within tolerances. Compare LEs from multiple lenders side-by-side — they're standardized so direct comparison works. The final Closing Disclosure must match within those tolerances or the lender owes you the difference.
Your loan amount divided by the home's value (or purchase price).
$400k loan on a $500k home = 80% LTV. Above 80% triggers PMI on conventional loans. LTV bands drive LLPA pricing and program eligibility. "Combined LTV" (CLTV) includes second liens. Used everywhere — see PMI Removal, Home Equity, and Cash-Out vs HELOC calculators.
FHA's mortgage insurance — different rules than conventional PMI.
Two layers: 1.75% UFMIP (Upfront MIP, paid at closing or financed in) and ~0.55% annual MIP (paid monthly). For FHA loans <10% down originated after June 2013, MIP is for the LIFE of the loan — HPA cancellation does NOT apply. With ≥10% down, MIP cancels after 11 years. Pre-2013 FHA loans cancel at 78% LTV. The PMI Removal calculator handles all four cases.
A 3.8% surtax on investment income for high earners.
Applies to interest, dividends, rental income, and capital gains for taxpayers with MAGI over $200k single / $250k MFJ. Stacks on top of long-term capital gains brackets — so a 24%-bracket couple with rental income or a big home sale might see effective tax of 18.8% (15% LTCG + 3.8% NIIT) on cap gains. Not modeled in every calculator; the Sell vs Rent-Out and Investment Property tools include it.
The federal database of licensed mortgage originators.
Every loan officer must have an NMLS ID, which appears on all your loan documents. Look up any LO at nmlsconsumeraccess.org to verify license status, employment history, and disciplinary actions. State-licensed brokers must also list their state license. Required by the SAFE Act of 2008.
A rental property's annual income minus operating expenses (but NOT mortgage payments).
NOI = effective rent (gross rent − vacancy) − all operating expenses (property tax, insurance, maintenance, capex, HOA, management). Excludes debt service and income taxes. The numerator for cap rate. Computed automatically in the Investment Property Analyzer.
Principal, Interest, Taxes, Insurance — the four parts of a typical mortgage payment.
Often expanded to PITIA when HOA dues are included. Lenders measure your front-end DTI on PITI, not just principal + interest. The Mortgage calculator shows the full PITI breakdown and what % of your income each component represents.
Insurance required on conventional loans with <20% down, paid monthly until you reach 20% equity.
Rate varies 0.20% (760+ FICO at 85% LTV) to 1.5%+ (low FICO at 97% LTV). Auto-cancels at 78% LTV by the original schedule (HPA). Can request cancellation at 80% LTV by schedule, or pay for an appraisal and request at 80% of current value (Fannie servicer rule). Different from FHA's MIP. The PMI Removal calculator finds your earliest cancellation date.
A "point" = 1% of the loan amount. Discount points lower your rate; origination points are lender fees.
Discount points: optional, ~0.25% rate drop per point. Worth it if you'll hold the loan past break-even (typically 5-8 yrs). Origination points: lender's compensation, similar to a fee. Both shown on the Loan Estimate.
A single-family home in an HOA-managed community.
Different from a condo — you own the land + structure (vs condos where you own the airspace + share the building). PUDs price like detached SFRs (no PMI hit, no condo LLPA). Watch out for HOAs in financial trouble — lenders check the HOA's financials before approving the loan.
Apply a lump sum to principal and re-amortize the same loan at the same rate over the same term.
Result: lower monthly payment, same payoff date, same rate, no requalification. Fee: typically $150-$500. Most servicers require a $5k+ minimum AND a 10% balance reduction. Available on conventional and most jumbo loans; FHA, VA, USDA loans cannot be recast. Use the Mortgage Recast calculator to compare against extra-payment and refi.
Your right to ask the appraiser to reconsider their value, with comparable sales you provide.
Formally codified as a borrower right under FHFA's 2024 ROV rule for Fannie/Freddie loans. Free, fast (~30 days), and the cheapest first move when an appraisal comes in low. Material value changes are rare but possible if the original appraiser missed strong comps. Always do this before paying for a second appraisal. Featured in the Appraisal Gap Planner.
The $10,000 cap on State and Local Tax deductions imposed by the 2017 TCJA.
Limits your itemized deduction for state income tax + property tax to $10k combined. Hits high-tax states (CA, NY, NJ) hardest. Most homeowners hit this cap from property tax alone. The Refinance and Rent-vs-Buy calculators use this in their tax models when computing whether mortgage interest pushes you over the standard deduction.
IRS rule that lets you exclude up to $250k single / $500k MFJ of capital gains from selling your primary residence.
Requirements: you owned and used the home as your primary residence for at least 2 of the last 5 years before sale. Convert to rental and the exemption window starts ticking down — sell within ~3 years of conversion to keep the full exclusion. Modeled in the Sell vs Rent-Out calculator.
Secured Overnight Financing Rate — the index modern ARMs adjust to.
Replaced LIBOR for new ARMs starting 2021-2022. Set by the Federal Reserve Bank of New York. Modern 5/6 SOFR ARMs adjust every 6 months after the initial fixed period (vs legacy 5/1 ARMs adjusting yearly). Your fully-indexed rate = SOFR + your margin (typically 2-3%).
Federal tax law that capped mortgage-interest deduction at $750k acquisition debt and SALT at $10k.
Pre-TCJA: $1M cap on acquisition debt, no SALT cap. TCJA: $750k cap (grandfathered for older loans), $10k SALT cap. Also: HELOC and cash-out interest only deductible if proceeds buy/build/substantially-improve the home securing the loan. Fundamentally changed the value of itemizing for most homeowners — many now take the standard deduction. Several provisions due to sunset; check current law.
A one-time premium that protects against defects in the property's title (liens, claims, fraud).
Two policies: lender's (required, protects the bank, ~0.5% of loan) and owner's (optional but recommended, protects you, ~0.5% of price). One-time cost paid at closing. In FL, much of the SE, and some CA counties, the seller customarily pays the owner's policy.
A state/county/city tax on the sale or transfer of real property.
Varies wildly: TX 0%, CA ~0.11% county-level (cities add on), FL 0.7%, DC 1.45% (each side), NY state 0.4% + NYC 1-2.625% + mansion tax 1-3.9% above $1M. Usually paid by the seller, sometimes the buyer, sometimes split. Often the largest single line on the closing disclosure.
TILA-RESPA Integrated Disclosure — federal rules requiring the standardized Loan Estimate and Closing Disclosure.
Effective Oct 2015. Replaced the old GFE and HUD-1. Defines tolerances for what can change between LE and CD: zero tolerance (lender's own fees), 10% tolerance (lender-shoppable services), unlimited (your own choices). Major changes restart the 3-day waiting period before closing.
The lender's review process to verify you and the property meet loan requirements.
Reviews credit, income (W-2s, paystubs, tax returns for self-employed), assets (bank statements, gift letters), employment, and the property (appraisal, title). Conditional approval = approval contingent on additional docs. Clear-to-close = final green light. Manual underwriting (vs automated DU/LP) used when AUS rejects but a real underwriter sees compensating factors.
0%-down government-backed loan for properties in eligible rural areas.
Income limits apply (typically 115% of area median). Property must be in a USDA-eligible area (most rural and many suburban areas — check eligibility map). 1% upfront guarantee fee + 0.35% annual fee, both for life of the loan. Primary residence only.
0%-down mortgage for eligible veterans, service members, and surviving spouses.
No PMI/MIP — replaced by a one-time funding fee (0.50% IRRRL refi up to 3.30% subsequent-use 0% down). Funding fee waived for veterans with service-connected disability. No private mortgage insurance, often best rates available. Limited to primary residences. Use the Closing Cost Estimator's VA tier picker.
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