Mortgage Vocabulary Made Simple
This guide explains key items such as the Loan Estimate, debt-to-income ratio, loan-to-value ratio, private mortgage insurance, escrow, rate locks, and underwriting.
Each term is broken down without jargon so you can understand how these elements shape your loan options and overall homebuying experience.
Terms
A standardized three-page disclosure that outlines a mortgage’s key terms, projected payments, and closing costs. Lenders must provide it within three business days of receiving a loan application.
A borrower’s total monthly debt obligations divided by gross monthly income. Lenders use it to assess capacity to repay a mortgage.
The loan amount divided by a property’s appraised value or purchase price, whichever is lower. It measures equity and risk; higher ratios indicate higher lender exposure.
Insurance that protects the lender when a borrower makes a down payment below 20 percent. It is added to the monthly mortgage payment until sufficient equity is reached.
A financial arrangement in which a third party holds and disburses funds for specific obligations. In mortgages, escrow accounts commonly cover property taxes and homeowners insurance.
A lender’s commitment to hold a specified interest rate and terms for a defined period during loan processing, protecting the borrower from market rate changes.
The lender’s formal evaluation of a borrower’s creditworthiness and the collateral property. It includes validating income, assets, debts, credit history, and appraisal data to determine loan approval.
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