First-time buyers

Mortgage glossary

• APRAnnual percentage rate: the yearly cost of a loan including interest and certain fees, so you can compare offers.
• AmortizationPaying a loan down in equal monthly payments, where early payments are mostly interest and later ones mostly principal.
• AppraisalA licensed appraiser's opinion of the home's market value, used by the lender to size the loan.
• ARMAdjustable-rate mortgage: the rate is fixed for a set period, then changes with an index plus a margin, within caps.
• Closing costsFees and prepaid items paid at closing, such as lender fees, title, recording, taxes and insurance.
• Conforming loanA conventional loan at or below the FHFA loan limit that meets Fannie Mae or Freddie Mac rules.
• Down payment assistance (DPA)Grants or second loans from states, cities or nonprofits that help pay a down payment or closing costs.
• DTIDebt-to-income ratio: monthly debt payments divided by gross monthly income, shown as a percentage.
• DSCRDebt service coverage ratio: a rental property's rent divided by its monthly housing payment.
• EscrowAn account the servicer uses to collect and pay your property taxes and homeowners insurance.
• FHA loanA mortgage insured by the Federal Housing Administration, allowing 3.5% down with a 580 credit score.
• Funding feeA one-time VA loan charge that helps fund the program; some veterans are exempt.
• ITINIndividual Taxpayer Identification Number from the IRS, for people who file taxes but cannot get a Social Security number.
• Jumbo loanA loan above the conforming loan limit for its county, with stricter rules.
• Loan EstimateA standard three-page form lenders must give within three business days of your application.
• LTVLoan-to-value ratio: the loan amount divided by the home's value or price, whichever is lower.
• MIPFHA mortgage insurance premium: an upfront charge plus an annual premium paid monthly.
• Non-QM loanA mortgage outside the CFPB Qualified Mortgage rules, often using other income proof such as bank statements.
• PITIPrincipal, interest, taxes and insurance: the main parts of a monthly housing payment.
• PMIPrivate mortgage insurance on conventional loans with less than 20% down; it can be removed later.
• PointsUpfront fees, each equal to 1% of the loan, paid to lower the interest rate.
• Pre-approvalA lender's conditional review of your credit, income and assets, showing a likely loan amount.
• ReservesSavings left after closing, counted in months of housing payments.
• USDA loanA zero-down mortgage guaranteed by the US Department of Agriculture for eligible rural and suburban areas.
• VA loanA mortgage guaranteed by the Department of Veterans Affairs for eligible service members, veterans and surviving spouses.