When you're exploring home financing, the terms can sound more complicated than they are. Here you will find the most common mortgage words and phrases in plain, easy-to-understand language so you can move forward with confidence.
Amortization
The process of paying off your loan through regular monthly payments. Each payment reduces the loan balance a little more over time.
Annual Percentage Rate (APR)
A number that shows the total cost of the loan each year, including interest and some fees. It's useful for comparing loan options.
Appraisal
A professional estimate of what a home is worth. Lenders use it to make sure the home's value supports the loan amount.
Closing Costs
Fees and expenses you pay when finalizing your home purchase—like lender fees, title insurance, and taxes.
Credit Score
A number that reflects how well you’ve managed credit. Lenders use it to decide how risky it is to lend to you.
Debt-to-Income Ratio (DTI)
Compares your monthly debt payments to your monthly income. Lenders use it to see if you can handle a mortgage.
Down Payment
The amount of money you pay upfront for a home. A larger down payment can lower your loan amount and may reduce fees.
Earnest Money
A deposit you make to show you're serious about buying. It usually goes toward your down payment at closing.
Escrow
An account your lender uses to hold money for your property taxes and homeowner’s insurance, paid from your mortgage.
Fixed-Rate Mortgage
A home loan with an interest rate that stays the same the entire time you have the loan.
Homeowners Insurance
Covers damage to your home from things like fire or storms. Lenders require it as part of the mortgage.
Interest Rate
The percentage charged on the amount you borrow. It’s part of your monthly payment and affects how much you pay over time.
Loan Estimate
A form from your lender that breaks down your estimated loan costs so you can compare offers.
Loan Term
How long you’ll take to pay back the loan—usually 15, 20, or 30 years.
Loan-to-Value Ratio (LTV)
Shows how much of the home's value you're borrowing. A lower LTV can mean better loan terms.
Mortgage Insurance (PMI)
Required when your down payment is less than 20%. It protects the lender, not you, if you stop making payments.
Pre-Approval
A lender’s early review of your finances to estimate how much you could borrow. It shows sellers you're a serious buyer.
Principal
The original amount you borrow. As you make payments, this number goes down.
Property Taxes
Taxes paid to your local government based on your home’s value. Often included in your monthly mortgage payment.
Title
The legal proof that you own the home. A title search makes sure no one else has a claim to it.
You can explore a more detailed glossary from the Consumer Financial Protection Bureau (CFPB) here: CFPB Mortgage Glossary
Once you're comfortable with the basics, the next step is speaking with a professional who can walk you through your personal options.
That’s why I recommend Stacey Shaw at Alpha Mortgage. She’s a seasoned mortgage expert who explains everything clearly and truly looks out for her clients. You can reach her directly or let me know, and I’ll connect you.