Common Mortgage Terms

Prequalification

A preliminary assessment where a lender evaluates your financial situation to determine how much you may be able to borrow. This process doesn't involve a full credit check.

Preapproval

A step beyond prequalification, where a lender reviews your financial documents to determine the exact qualified loan amount. This process will involve a full credit check.

FHA Loan

A loan backed by the Federal Housing Administration, designed for low-to-moderate-income buyers with lower credit scores. FHA loans typically require a lower down payment and more flexible credit requirements.

VA Loan

A mortgage loan backed by the U.S. Department of Veterans Affairs, available to eligible veterans, active-duty military members, and some surviving spouses. VA loans often require no down payment and offer competitive interest rates.

USDA Loan

A government-backed loan designed for low-to-moderate-income buyers in rural areas. USDA loans offer 100% financing (no down payment required) and have low-interest rates. USDA loans typically require a guarantee fee to help fund the program and reduce lender risk. It includes a one-time upfront fee and an annual fee (divided into monthly payments and added to the mortgage).

Conventional Loan

A traditional mortgage not backed by a government agency (like FHA, VA, or USDA). Conventional loans typically require a higher credit score and a larger down payment. However, for first-time homebuyers, the down payment can be as little as 3%, making it a competitive option with attractive rates.

Down Payment

The initial upfront portion of the home’s purchase price that you pay, typically a percentage of the home price. Common down payments range from 3% to 20%, depending on the loan type.

Down Payment Assistance

Programs designed to help buyers cover the upfront costs of purchasing a home, often through grants or loans. These options make homeownership more accessible, especially for first-time buyers or those with limited savings.

Closing Costs

The fees associated with finalizing a mortgage, which may include appraisal fees, title insurance, and attorney fees. These costs typically range from 2% to 5% of the home's purchase price and is in addition to the down payment amount.

Credit Score

A numerical representation of your creditworthiness, which helps lenders assess the risk of lending to you. A higher credit score can result in better loan terms.

Interest Rate

The percentage charged by the lender for borrowing the money. The interest rate can be fixed (stays the same throughout the loan) or adjustable (can change over time).

APR (Annual Percentage Rate)

The total cost of borrowing, including the interest rate and any associated fees, expressed as a yearly percentage. It gives a more complete picture of what the loan will cost over time.

Private Mortgage Insurance (PMI)

Insurance required by lenders when the down payment is less than 20% of the home's purchase price. PMI protects the lender if the borrower defaults on the loan.

Mortgage Insurance Premium (MIP)

A type of insurance required for FHA loans that protects the lender if the borrower defaults. MIP is paid upfront or monthly and is typically required if your down payment is less than 20%.

Equity

The portion of the home you own outright, calculated by subtracting the amount you owe on your mortgage from the home's current market value.

Initial Disclosures

A set of documents provided early in the loan process that outline the terms, conditions, and estimated costs of your mortgage. These disclosures help you understand your rights and responsibilities as a borrower.

Loan Estimate

A three-page document that provides an itemized breakdown of your loan's key terms, estimated costs, and fees. It allows you to compare loan options and make informed decisions.

Closing Disclosure

A five-page document provided three days before closing that details the final loan terms, costs, and payment breakdown. It ensures you understand all financial obligations before signing.