Mortgage Terms A-Z
Below are the most common terms you'll hear from your loan officer, see on your loan estimate, or read in your closing disclosure. Each is written in plain English, with relevance to California buyers in mind.
APR (Annual Percentage Rate). The total cost of borrowing expressed as an annual rate, including interest plus most closing costs. A more complete number than the interest rate alone for comparing loan offers.
Amortization. The process of paying down a loan through scheduled payments of principal and interest. Early payments are mostly interest; later payments are mostly principal.
ARM (Adjustable-Rate Mortgage). A mortgage with an interest rate that changes periodically based on a market index. Usually starts with a fixed-rate intro period (5, 7, or 10 years).
Cash-to-Close. The total amount of money you need to bring to the closing table, down payment plus closing costs, minus any credits.
Closing Costs. Fees and prepaid expenses you pay at closing, typically 2-4% of the purchase price in California.
Conforming Loan. A conventional loan that meets the loan limit and underwriting guidelines set by Fannie Mae and Freddie Mac. In most California counties for 2026, the conforming limit is $806,500 for single-family homes (higher in high-cost areas).
Conventional Loan. A mortgage not insured or guaranteed by the federal government. Usually conforming, but can also be non-conforming (jumbo).
Debt-to-Income Ratio (DTI). Your total monthly debt payments divided by your gross monthly income, expressed as a percentage. Most lenders cap DTI at 43-50%.
Discount Points. Optional upfront fees paid to the lender to lower your interest rate. One point equals 1% of the loan amount and typically lowers the rate by 0.25-0.375%.
Earnest Money Deposit (EMD). A good-faith deposit you give the seller when going into contract, usually 1-3% of the purchase price. Credited toward your down payment at closing.
Escrow Account. An account held by your loan servicer where they collect monthly portions of your property tax and insurance, then pay those bills when due.
FHA Loan. A mortgage insured by the Federal Housing Administration. Lower down payment and credit requirements; requires mortgage insurance.
Fixed-Rate Mortgage. A mortgage where the interest rate stays the same for the life of the loan.
HELOC (Home Equity Line of Credit). A revolving line of credit secured by your home, usually with a variable rate. Draw funds as needed during the draw period.
Interest Rate. The cost of borrowing the principal balance, expressed as an annual percentage.
Jumbo Loan. A mortgage above the conforming loan limit. In most of California, that's above $806,500 in 2026.
LTV (Loan-to-Value Ratio). The loan amount divided by the property's appraised value, expressed as a percentage. 80% LTV means a 20% down payment.
Lien. A legal claim on your property held by a lender as security for the loan. The mortgage holder has a first lien; second mortgages and HELOCs sit in junior lien position.
MIP (Mortgage Insurance Premium). The FHA equivalent of PMI. Includes an upfront premium and a monthly premium; usually cannot be cancelled on modern FHA loans.
Origination Fee. A fee charged by the lender for processing the loan. Often expressed as a percentage of the loan amount or a flat dollar amount.
PITI. The four components of a typical mortgage payment: Principal, Interest, Taxes, and Insurance.
PMI (Private Mortgage Insurance). Required on conventional loans with less than 20% down. Cancellable when you reach 80% LTV.
Pre-Approval. A written commitment from a lender stating the loan amount you qualify for, based on a credit pull and document review. Stronger than a pre-qualification.
Principal. The portion of your monthly payment that reduces your loan balance (as opposed to interest).
Rate Lock. A guarantee from the lender to honor a specific interest rate for a set period (typically 30-60 days), regardless of market movements.
Recast. Re-amortizing an existing loan after a large lump-sum principal payment, reducing the monthly payment while keeping the same term and rate.
Reserves. Cash you have on hand after closing, expressed in months of mortgage payments. Lenders often require 2-12 months of reserves depending on the loan.
Title Insurance. A one-time premium paid at closing that protects against future title disputes. Lender's policy is usually required; owner's policy is optional but recommended.
Underwriting. The process where the lender's underwriter reviews your full file and decides whether to approve the loan.
VA Loan. A mortgage guaranteed by the Department of Veterans Affairs. Available to eligible veterans and service members. No down payment required, no PMI.