Glossary
Financing Terms, Explained Simply.
The mortgage vocabulary you will meet on the way to your first home, explained in plain language. Each term gets a short, simple definition written for a first-time buyer, with no jargon and no fine print.
Financing terms
13 plain-language definitions- Pre-approval
- Verified financing: the lender reviews your income, credit, and assets and commits to a loan amount before you shop. It is the figure that makes your offer competitive. (full definition)
- Pre-qualification
- A quick estimate of what you might borrow, based on figures you provide without full verification. Useful as a starting point, but a pre-approval is the document sellers trust. (full definition)
- Interest rate
- The percentage a lender charges you to borrow money, shown as a yearly figure. It is the main driver of your monthly mortgage payment.
- APR (annual percentage rate)
- The yearly cost of a loan expressed as a single rate: the interest rate plus the loan's fees. Comparing APR makes different offers easier to compare honestly. (full definition)
- PMI (private mortgage insurance)
- Insurance a lender requires on conventional loans with a down payment below a common threshold. It protects the lender if you default and is typically dropped once you build enough equity. (full definition)
- Closing costs
- The one-time fees paid at closing: loan fees, title insurance, escrow, recording, and prepaid taxes. Plan for roughly 2 to 5 percent of the purchase price, common in Oregon and Idaho. (full definition)
- Fixed vs. adjustable rate
- A fixed-rate loan keeps the same interest rate for the full term, so the principal and interest payment stays the same. An adjustable-rate mortgage starts with a fixed period, then the rate changes on a set schedule. (full definition)
- Down payment
- The part of the home's price you pay upfront from your own savings; the mortgage covers the rest. Minimums vary by loan type, and a larger down payment usually means a smaller loan and a lower payment.
- Points
- Upfront interest paid at closing to lower your interest rate; one point equals 1 percent of the loan amount. Paying points lowers the rate, and your Loan Estimate shows the trade-off. (full definition)
- Debt-to-income ratio (DTI)
- The share of your gross monthly income that goes to debt payments, including the new mortgage. Lenders use it to decide how much home you can safely afford.
- Loan-to-value ratio (LTV)
- Your loan amount compared to the home's value, shown as a percentage. A lower ratio means you are borrowing less relative to the home, which often earns you a better rate.
- Mortgage broker vs. lender
- A lender is the bank or company that actually provides the loan. A mortgage broker is the middle person who shops your file to several lenders to find the best fit.
- Escrow account
- An account the lender maintains to collect property tax and insurance with each mortgage payment, sometimes called an impound account. It is not the same as the escrow that holds a real estate transaction's funds. (full definition)
More terms
Every other mortgage term lives on the main glossary.
This page keeps only the terms unique to financing. The full A-to-Z real estate glossary, alphabetized and in plain language, lives on the main glossary page.
General information, not financial advice.
This page is general information, not financial advice. Your specific loan terms depend on your lender, your market, and your situation.