Mortgage glossary: Key terms, loan types, and closing costs

This article is for informational purposes only and is not intended to provide, and should not be relied on for, medical, legal, financial, or tax advice. You should consult with a qualified professional for advice specific to your situation. Consumers should independently verify that any services, products, or programs referenced meet their needs and comply with applicable requirements.

Whether you want to take out a mortgage or already have one, it’s helpful to familiarize yourself with the words you’ll encounter. A clear understanding of common mortgage terms helps you navigate home loans with more confidence.

What this mortgage glossary covers

Like any glossary, we’ll cover the key terms you need to know. Most of these will be in alphabetical order, but we want to cover some high-level basics that people are often confused by right off the top. We’ll also look to answer some common questions at the beginning and end of the article.

How to use this mortgage glossary

If you’re brand-new to mortgage and thinking about buying or refinancing a home soon, you could dive in and read this thing top to bottom. If you’re just looking for a quick primer on a term or two, jump to different sections with the letters linked above.

Common mortgage questions

Before we get into different terms, let’s work on answering some common questions you may have.

What is the 3-3-3 rule for mortgages?

The 3-3-3 rule for mortgages says you should have a 3-month emergency fund for unexpected expenses, 3 months worth of mortgage payments in case you lose income, and view at least three similar homes before coming to a decision.

Do most retirees have their home paid off?

According to Census Bureau data from 2024, retirees (loosely defined as 65+) own their home outright by a 2:1 margin compared to those who are paying off a mortgage.

Common mortgage types

Before we get into an alphabetized list, let’s go over some of the most common mortgage types.

Mortgage loans

A mortgage is a loan to finance a home. You may get one when you buy a home or take a new loan for a better rate or to convert existing equity into cash.¹

Adjustable-rate mortgage (ARM)

An adjustable-rate mortgage is one with a rate that can adjust after a fixed term at the beginning of the loan. After the adjustment based on an index and margin, the loan is reamortized to pay off at the end of the term, usually 30 years. There are caps and floors limiting adjustments in either direction.

Cash-out refinance

A cash-out refinance offers a way to tap into your home equity by taking out a bigger mortgage than your existing loan. You’ll use the funds to pay off your current mortgage and pocket the difference in cash. At the end of this transaction, you’ll still have a single mortgage payment to keep up with.

Conventional mortgage

A conventional mortgage is any mortgage that doesn’t have government backing. Conventional mortgages have down payments from 3% – 5% for a single-unit primary residence.²

Conforming mortgage

This is the most common type of conventional mortgage. For a loan to be conforming, it has to meet the requirements for sale to Fannie Mae or Freddie Mac.

Fixed-rate mortgage

With a fixed-rate mortgage, your principal and interest portion of the payment is always the same because the rate doesn’t change. Changes in your mortgage payment are possible related to homeowners insurance and property taxes.

Government-backed mortgages

While often made by private lenders, these loans are guaranteed by the government through the FHA, VA, or USDA.^3,4 This means lenders can be a little more lenient in terms of credit and down payment required.

Home equity loan

A home equity loan is another way to tap into your home equity. In this type of second mortgage, you’ll receive an upfront sum that you’ll repay in fixed monthly payments.⁵ You’ll have two payments, but the advantage is that you won’t have to touch your current rate.

Rate-and-term refinance

This type of refinance is done to lower your rate or change your term.

Refinance

If you refinance your existing mortgage, you’ll trade your existing loan for a new one. This is done to lower your interest rate, change the term, or access equity Before refinancing your mortgage, it’s important to understand how refinancing works and the closing costs associated with getting a new loan.

Most important mortgage terms

If you’re trying to get an idea of the most important terms to know in a few paragraphs, check out these.

Ability-to-repay rule (ATR)

The ability-to-repay rule goes over the lender’s legal responsibility for many types of loans to qualify you along eight factors:

• Income and assets
• Employment
• Mortgage payment
• Credit history
• Other expenses related to the home (property taxes, homeowners insurance and homeowners association fees, etc.)
• Expenses related to other loans you have on this property or others
• Debt-to-income ratio (DTI)
• Current debts

Interest rate

This is the interest rate that your monthly payment is based on. The annual rate is divided by 12 and multiplied by your balance to come up with your monthly interest charge. The base interest rate is different from APR.

Annual percentage rate (APR)

The annual percentage rate is always shown next to or underneath the base interest rate. The APR is always higher because the rate accounts for the base rate plus closing costs so you can get an idea of the finance charges.

Amortization

Amortization is the schedule of how much goes toward your principal and how much goes toward interest each month so that your loan is paid off by the end of the term. At the beginning of the term, most of the monthly payment goes toward interest. The later you get into the term, the more this flips.

Appraisal

In an appraisal, a third party evaluates your home value by inspecting its interior and exterior features. Your home is then stacked up against recent sales of comparable homes. Not every home valuation requires a full appraisal.

Closing

Closing is when you sign your paperwork, pay any financing charges and the loan becomes official. If you’re buying a home, this is also when you get the keys.

PITI

Standing for Principal, Interest, property Taxes, and homeowners Insurance, PITI represents components that are included in your monthly mortgage payment qualification. This is true regardless of whether you have an escrow account because lenders have to do the underwriting based on all of your obligations.

Underwriting

Underwriting occurs when a lender verifies the details of your financial situation before they approve your home loan. For example, the lender will verify your assets, income, debt, property details, and more.

#

5/1 adjustable-rate mortgage

A 5/1 ARM is one that remains fixed for 5 years before adjusting once per year thereafter, subject to caps and floors.

5/6 adjustable-rate mortgage

A 5/6 ARM is fixed for the first 5 years and adjusts every 6 months thereafter, subject to market movements, caps, and floors.

7/1 adjustable-rate mortgage

A 7/1 ARM is fixed for the first 7 years of the loan before adjusting every year after that based on its index, margin, caps, and floors.

7/6 adjustable-rate mortgage

A 7/6 ARM stays fixed for 7 years before adjusting every 6 months. An index, margin, caps, and floors all apply

10/1 adjustable-rate mortgage

A 10/1 ARM offers a fixed rate for the first 10 years of the loan. It adjusts every year thereafter for the remainder of the term. The adjustments are governed by margin, index, caps, and floors.

10/6 adjustable-rate mortgage

This has a fixed-rate for 10 years and adjusts every 6 months for the remainder of the term based on margin, index, caps, and floors.

A

Appreciation

Home appreciation means a property’s value increases over time. As a property appreciates, the homeowner can watch their home equity grow.

Assessed value

The assessed value, sometimes called the tax-assessed value, is a metric used when determining property taxes. A higher assessed value leads to higher property taxes. In general, the assessed value of your home is considered a stable indicator of a home’s value.

Assets

Assets encompass anything that you own that has a cash value. Some common assets include your stocks, a savings account, and bonds. While physical cash is also an asset, it’s best to keep this in a bank account so lenders can source it.

Automatic payment

An automatic payment is a withdrawal that comes out of your checking or savings account from your bank account on a specific date each month. The payment comes out via Automated Clearing House withdrawal at the same time each month.

B

Balloon loan

A balloon loan, or balloon mortgage, is a nontraditional mortgage in which there’s a lump-sum payment at the end of the loan. This could be at the end of the loan time during the term.

Biweekly payment

Biweekly payments mean you make a payment every 2 weeks instead of every month, cutting the payment in half. Because of the way the calendar falls, you make the equivalent of one extra payment each year that gets applied to your mortgage balance to pay off your loan faster.

Borrower

A borrower is the person or entity taking out the mortgage loan.

Breakeven point

The breakeven point is when you’ve recouped the cost of mortgage points or a refinance. For example, if you buy mortgage points, you can lower the interest rate on your mortgage. The breakeven point indicates when the upfront costs make sense.

Bridge loan

A bridge loan is a temporary financing solution, generally with loan terms of 6 months to 1 year. These loans are often used to finance the purchase of a new house before you sell your current house. This transitional loan is sometimes called a swing loan.

Broker

A real estate broker is legally qualified to help you through a real estate transaction. The broker’s job is to confirm that the real estate transaction complies with state regulations. They also ensure the paperwork is correct and that the funds make it to the appropriate parties.

This could also mean a mortgage broker who takes your mortgage application and then shops different lenders for the best loan for your situation.

Buydown

A buydown offers a way to lower your mortgage interest rate by purchasing discount points or mortgage points, which are one-time fees that you pay at closing to lower your interest rate.

C

Cash to close

The term cash to close indicates how much money you’ll need to bring to the closing table. This includes closing costs and your down payment. You should know how much cash to close or funds to close you’ll need before closing day. With that information, you can come prepared with the appropriate amount.

Closing costs

Closing costs are the funds you pay your lender to finalize your loan. Closing costs usually total 3% – 6% of the purchase price or loan amount. Common closing costs include appraisal fees, loan origination fees and credit checks. The exact cost will vary based on your situation.

Closing Disclosure

A Closing Disclosure is a document that includes the final details of your loan. It will include your interest rate, loan principal, and the closing costs you must pay. Your lender is legally required to give you at least 3 days to review your Closing Disclosure before you sign on your loan.

Co-borrower

A co-borrower is someone who applies for a loan with you. All borrowers are legally responsible for repaying the loan. In most cases, co-borrowers share the title to the house.

Collateral

Collateral is an asset used to secure a loan. With home loans, the home acts as collateral for the mortgage. If the borrower doesn’t keep up with the payments, the lender can take the home.

Condominium

Homeowners own individual units. The condo association is often responsible for the exteriors and any communal features shared among its members. Members pay dues for this upkeep.

Construction loan

A construction loan is a short-term loan designed to cover the cost of building a house. This is often converted or refinanced to a traditional mortgage upon completion.

Contingency

A contingency clause in a home purchase offer indicates that a certain condition must be met before the sale is finalized. If the condition isn’t met, the buyer and seller will no longer have an enforceable purchase agreement.

Co-signer

A co-signer is someone who signs with you for a loan. As a co-signer, you take on the responsibility for repaying the loan. Co-signers generally don’t get their name on the title of the home.

Credit report

A credit report is a history of your interactions with credit over the years. It includes information about which loans you have taken out and the payment history for these loans. Lenders can use this information to gauge your creditworthiness.

Credit score

A credit score is a three-digit number that assesses your creditworthiness based on information in your credit report. Lenders look at your credit score when considering your mortgage application and determining your interest rate.

Curtailment

A curtailment indicates paying off all or part of your mortgage ahead of schedule. A full mortgage curtailment involves paying off the rest of your mortgage balance in one transaction. A partial mortgage curtailment involves making extra payments of any size.

D

Debt-to-income ratio (DTI)

Your debt-to-income ratio is a measure of how your monthly debt obligations stack up to your income. You can calculate this number by adding up your minimum monthly payments and dividing that by your total monthly pretax income.

Demand feature

The demand feature on a Closing Disclosure permits the lender to require early loan repayment. If this box is checked “yes” on the Disclosure, your lender can demand repayment for any reason at all after the date listed in your loan documentation.. Most mortgages don’t have a demand feature.

Deed

A deed is a physical document that indicates your ownership of the property.

Deed in lieu of foreclosure

If you are behind on your mortgage payments, deed in lieu of foreclosure gives you an opportunity to avoid the foreclosure process by voluntarily handing over the property.

Deed of trust

A deed of trust is an agreement between the lender and the homeowner that the homeowner will repay the mortgage lender. Until the mortgage is paid off, the lender will hold onto the property’s title. This is used in place of a mortgage in some states.

Down payment

A down payment is made to secure a purchase loan. Generally, down payments are listed as a percentage of your loan value. Some types of government-backed loans may even allow you to buy a home with no down payment, but most mortgages require a down payment of 3% – 5% for a primary residence.

E

Earnest money deposit

An earnest money deposit is a check that you write to a seller when you make an offer on a home to show the seller that the buyer is serious about their offer. The earnest money goes toward your cash to close.

Encumbrance

An encumbrance is a type of claim on the property that limits how the owner can use it. For example, environmental regulations or zoning laws could create an encumbrance for how to use a specific property.

Equity

Home equity represents the difference between your home’s market value and the amount you still owe on your mortgage. You can determine your home equity by subtracting your remaining mortgage balance from your home’s market value.

Escrow

Before you close, your earnest money deposit is held in a third-party account for the benefit of both the buyer and seller. After closing, an escrow account is where servicers hold money for your property taxes or homeowners insurance.

F

Fair market value (FMV)

Fair market value represents the amount a property will sell for in the open market. To secure a mortgage, your lender will often order an appraisal. If it comes back lower than the agreed-upon purchase price, you can renegotiate, walk away (with an appraisal contingency), or bring the difference to closing.

Fannie Mae

Fannie Mae is the Federal National Mortgage Association, a government-sponsored enterprise. It purchases conforming mortgages from lenders and guarantees the loans in the secondary mortgage market. It often repackages and sells these as mortgage-backed securities to investors.

FHA mortgage insurance premiums (MIP)

All FHA loan borrowers pay mortgage insurance premium (MIP), including an upfront premium paid at closing, which is 1.75% of the loan principal, and an annual MIP, which is rolled into the monthly mortgage payments either for 11 years or the duration of the loan term. Your annual payment depends on your loan amount, term, down payment, and equity.

FHA mortgage limits

FHA mortgage limits refer to the maximum loan amount you can borrow based on your area. HUD offers a limits tool to research the maximum amount you can borrow. You can choose your state and county in the HUD tool to learn the ceiling and floor limits in your area.

Federal Housing Administration (FHA)

The Federal Housing Administration is an agency within the U.S. Department of Housing and Urban Development. The FHA backs FHA loans, which offer less stringent borrower requirements to home buyers, with a government guarantee.

Finance charge

A finance charge is a fee you pay for borrowing money from a lender or creditor that lessens their lending risk. It may be either a flat fee or percentage of the borrowed amount. The amount you’ll pay depends on your lender, loan type, amount borrowed, and the finance charge type.

Floating rate

A floating-rate mortgage is a less-common name for an adjustable-rate mortgage. You’re also considered to be floating your rate if you haven’t locked it yet during the mortgage process.

Forbearance

Mortgage forbearance involves temporarily pausing or lowering your mortgage payments to give you a chance to gain your financial footing. At the end of the forbearance period, you’ll be expected to repay the payments you missed through a loss mitigation option.

Force-placed insurance

Force-placed insurance, sometimes called creditor-placed, lender-placed, or collateral protection insurance, allows lien holders to put insurance on the home to protect it if the borrower doesn’t already have a policy in place. It’s often more expensive than a policy a borrower could find on their own.

Foreclosure

If you fail to make your payments for an extended period, the lender might start the foreclosure process to repossess your home.

Freddie Mac

Freddie Mac, the Federal Home Loan Mortgage Corporation, is a government-sponsored enterprise that provides secondary financing in the mortgage market. It repackages loans and sells them as mortgage-backed securities to investors in the secondary mortgage market.

G

Good Faith Estimate

A Good Faith Estimate was a standardized form that provided key details about the mortgage. The Loan Estimate form replaced the GFE and the Truth-in-Lending Disclosure in 2015.

Government recording charges

Government recording charges refer to fees for recording deeds, mortgages, and other documents by state and local government agencies.

H

Home equity line of credit (HELOC)

A HELOC lets you borrow your home equity as a line of credit. During the draw period, you can take out and replenish the funds as many times as you want, only owing the interest. During the repayment period, the balance freezes, and principal and interest are owed for the remainder of the term. Rocket Mortgage doesn’t offer HELOCs.

Home inspection

A home inspection evaluates a home’s condition. They’ll test the heating and cooling system and appliances. Sometimes a more specialized inspection is needed for the roof or foundation. After the inspection, they will then give you a list of everything that needs to be repaired or replaced in the home. These are recommended, but not required.

Homeowners association (HOA)

A homeowners association is a private organization that manages a residential community. Most HOAs have a set of rules for homeowners living within the community. They may also provide certain services for the neighborhood, which are covered via HOA dues.

Homeowners insurance

Homeowners insurance covers the cost for repairs if a home’s been damaged during a covered incident. Some commonly covered incidents include fires, burglaries, and windstorms. You’re not legally required to get homeowners insurance to own a home, but mortgage lenders require you to maintain at least a certain level of coverage for the life of your loan.

Higher-priced mortgage loan

A higher-priced mortgage loan is a mortgage with an APR at least 1.5% higher (for first liens) or at least 3.5% higher (for second liens) than the average prime offer rate for a comparable transaction based on the rate lock date. These can be subject to special requirements.

HUD (U.S. Department of Housing and Urban Development)

The U.S. Department of Housing and Urban Development provides programs that help buyers, renters, and communities find and provide affordable housing. The most well-known program HUD is the FHA loan, but the administration also administers Section 8 housing.

I

Initial adjustment cap/floor

Initial adjustment caps limit the amount an interest rate can go up or down during the first adjustment on an ARM.

Initial escrow deposit

An initial escrow deposit is the amount you pay at closing to start your escrow account. It may be different from what you pay to maintain your escrow account each month.

Interest rate cap/floor

Interest rate caps limit how much the interest rate on an adjustable rate, such as with an ARM, can increase. Interest rate caps and floors can include an overall limit for the interest rate and the amount it can change during adjustment periods. Rate caps protect borrowers from interest rates from continually climbing upward while also limiting how much downward movement there can be.

Investment Property

Investment properties are bought to earn money through rental income or appreciation. Investment opportunities can be found in residential, commercial, and raw land deals.

J

Jumbo loan

A jumbo loan is a conventional loan that exceeds conforming loan limits.⁶ These limits can vary based on your location, but in 2026, most conventional loan limits are capped at $832,750 for a single unit. They can be higher based on the number of units and in high-cost areas.

L

Lien

A lien is a legal claim against a property. Your lender has a legal claim on the property until you repay the loan. When a lien exists, the lienholder may have the ability to foreclose on your home if you don’t keep up with the payment.

Lifetime adjustment cap/floor

A lifetime adjustment cap, also called a lifetime adjustment rate cap or floor, tells you how much an interest rate can rise or fall over the entire loan term.

Loan Estimate

A Loan Estimate is a standardized form that breaks down the details of the mortgage you’re applying for. The document includes information like estimated monthly payment, closing costs, and interest rate.

Loan modification

A loan modification is a change to your original mortgage loan terms to add missed payments back into the balance. Unlike a refinance, this is a loss mitigation option approved by a servicer only for homeowners making up missed payments.

Loan origination

A mortgage loan origination is the process of a lender creating your new loan and lending you the money. A loan originator oversees this process, often with a team.

Loan term

A loan term indicates the total amount of time it will take to repay the loan with regularly scheduled payments. The most common term is 30 years, but you can go as few as 8 years and pay less interest.

Loan-to-value ratio (LTV)

A loan-to-value ratio compares the loan amount to the value of the property. You can determine your LTV ratio by dividing your mortgage balance by the appraised value of the property. LTV ratio is expressed as a percentage. Lenders use this to determine loan amount and whether you must pay private mortgage insurance.

Loan assumption

Loan assumption happens when a new owner takes over an existing mortgage instead of getting a new one. Buyers often choose to buy a home with an assumable mortgage to take advantage of the seller’s lower interest rate. Most conventional loans don’t allow buyers to assume a mortgage, but you may be able to assume an FHA, VA, or USDA loan.

Loan deferment

Loan deferment allows you to move due dates for missed mortgage payments to the end of your loan term due to financial hardship. Your servicer will let you know whether you qualify for deferment based on certain factors such as number of missed payments and your ability to continue making your monthly payments.

Loss mitigation

Loss mitigation is the process of helping a struggling borrower get back on their feet financially. If the situation makes that impractical, it can also help them exit without the ordeal of foreclosure. Reach out to your servicer as soon as possible to discuss possible loss mitigation options if you’re having trouble with your mortgage.

M

Manufactured home

A manufactured home is built in a factory based on building codes created by the U.S. Department of Housing and Urban Development. The home is transported in one piece to the site, where it’s often attached to a permanent foundation.

Mortgage insurance

Mortgage insurance is a policy that protects the lender from loss if the borrower defaults on the loan.

Mortgage lender

A mortgage lender offers home loans. Picking the right mortgage lender is about finding the right loan options, being comfortable with what they’re telling you, and getting an interest rate that fits your budget. Finding the right fit is important because lenders are also often servicers, meaning you could be making payments to them for as long as you have the loan.

Mortgage points

Mortgage points, also called discount points, are prepaid interest. As a home buyer, you may buy mortgage points to reduce the interest rate on your loan. A single mortgage point costs 1% of your loan amount.

N

Non-owner-occupied

A non-owner-occupied unit means that the owner of the property doesn’t live in the property. In general, this means the owner intends to use the property as an investment.

O

Owner financing

Owner financing involves the owner of the property providing the financing to a buyer. It’s sometimes called seller financing. This is a contrast to the typical financing arrangement in which a buyer obtains financing through a third-party lender.

Owner-occupied

An owner-occupied property means that the owner of the property uses it as their primary residence. In the world of real estate investing, this usually means that the property owner lives on-site but rents out other units to tenants.

P

Payoff amount

A payoff amount indicates the total amount of money required to fully pay off a mortgage. It includes your outstanding balance, interest charges, and any potential fees.

Partial claim

A partial claim is a loss mitigation strategy available to FHA-insured mortgage borrowers struggling to make their mortgage payments. These become part of a secondary lien due when your mortgage is paid off

Permanent Change of Station (PCS) orders

PCS orders involve changing duty stations in the military, including military relocation instructions, or directing service members and family to a new location. The orders are usually lengthier (2 – 4 years), nonnegotiable, and require you to adhere to strict guidelines.

Preapproval

Mortgage preapproval is a lender’s estimate of how much you can afford. When you apply for a preapproval, your lender will pull your credit score, income, assets, and other financial information. While preapproval isn’t a guarantee that you’ll get approved, it does give you a good idea of how much you can borrow during your home shopping.

Prepayment penalty

A prepayment penalty is a fee charged when you pay off your home loan early. If the mortgage you’re applying for includes a prepayment penalty, it will be listed on the Loan Estimate and the Closing Disclosure.

Prepaid interest charges

Prepaid interest covers the daily interest that accrues on your mortgage from closing to your first mortgage statement. You pay this in advance at closing.

Prequalification

Prequalification is a rough estimate of how much a lender may be willing to lend you. A prequalification isn’t the same as preapproval. Prequalification usually doesn’t involve asset and income verification, and may not include a credit check. This means it’s less reliable than preapproval.

Prime rate

The prime rate is the rate that financial institutions will charge their most well-capitalized clients for a loan. These are usually corporate clients, but every other interest rate follows from this. There are also indices that track the prime rates offered by large financial institutions. Occasionally, interest rate adjustments may be based on these.

Principal

Your principal balance is the amount that you borrow to buy a home. Principal and interest are paid down each time you make a mortgage payment.

Private mortgage insurance (PMI)

Private mortgage insurance protects the lender if you default on a conventional loan. You’re required to pay PMI if you put down less than 20% on conventional loans. The good news is that you can cancel PMI payments when you have 20% equity in your property.

Property taxes

Property taxes are levied by local governments based on home value. Property taxes typically pay for police departments, roads, libraries, schools, and community development projects.

Purchase agreement

A purchase agreement is a contract between the buyer and seller that spells out the terms of a home sale. It’s sometimes referred to as a purchase and sale agreement.

Q

Qualified written request (QWR)

A qualified written request is a borrower’s request to have a mortgage lender, or its servicing agent, provide loan account information. You can send a QWR about mortgage loan servicing to request information about your loan or to correct any errors.

R

Rate lock

A rate lock protects borrowers from rising interest rates during the closing process. Essentially, this freezes your interest rate from the time you lock the rate to closing on your home loan.

Real estate agent

A real estate agent is a licensed professional who represents the buyer or the seller in a home sale. Sellers’ agents are also called listing agents. The real estate agents negotiate the terms of the sale and contracts on your behalf.

Real Estate Settlement Procedure Act (RESPA)

RESPA is designed to help borrowers navigate the mortgage loan process with all costs and fees easily accessible. RESPA is specifically focused on third-party costs.

Reverse mortgage

A reverse mortgage allows homeowners 62 and older to access their home equity without a mortgage payment as a lump sum, monthly payments, a line of credit, or some combination of these. The homeowner is responsible for property taxes, homeowners insurance, and maintenance. The loan is due when the last borrower or non-borrowing spouse moves out or passes away.

Rocket Mortgage doesn’t offer reverse mortgages.

Right of first refusal (ROFR)

The right of first refusal is a legal clause. It gives interested buyers the contractual right to be the first party to place an offer on or buy a property when the owner chooses to sell it. The clause is commonly found in lease agreements in which the tenant expresses interest in purchasing the home.

Right of rescission

The right of rescission gives the opportunity to cancel a refinance loan within 3 business days of closing on a primary residence. Essentially, this presents a limited window to change your mind on a major loan such as a cash-out refinance or a home equity loan

S

Second mortgage

A second mortgage is a lien against an already-mortgaged property. The lien is taken out on the portion of your home you’ve already paid off. In exchange, you receive cash.

Security interest

A security interest means your lender can take the property securing the loan and sell it to pay off the loan if you default. Signing the closing forms confirms a type of security interest through a contract.

Secured Overnight Financing Rate (SOFR)

SOFR is the interest rate set by the U.S. Treasury to determine overnight borrowing for banks based on repurchases of U.S. Treasuries. A version of this is often used to set interest rates for ARMs.

Seller concessions

Seller concessions are closing costs that the seller pays instead of the buyer. Buyers and sellers can negotiate seller concessions. The seller may accept or reject the concessions or send you a counteroffer with concessions removed.

Seller financing

Seller financing is a home sale in which the seller accepts installment payments directly from the buyer. This differs from a traditional sale, in which a buyer obtains financing from a lender and the seller is paid in full at closing.

Servicer

A mortgage servicer handles the everyday tasks of managing your loan, such as processing payments, responding to your questions, keeping track of principal and interest paid, and managing your tax and escrow accounts. Your servicer may or may not be your original lender. 

Shared appreciation mortgage (SAM)

A shared appreciation mortgage is a home loan that exchanges a portion of a home's appreciation to the mortgage lender for a lower interest rate, down payment, closing cost assistance, or funds for home repairs. You’ll reduce your upfront costs or receive a lower monthly payment, and the lender receives a share of the proceeds when you sell.

Short sale

A short sale involves a homeowner selling a property for less than the remaining mortgage amount. After the sale, the mortgage lender keeps all proceeds. This is a loss mitigation strategy and must be approved by the lender.

Subprime mortgage

Subprime mortgages are home loans directed toward borrowers with lower credit scores and poor credit history. They typically have higher closing costs and higher interest rates.

Survey

A survey, also called a land survey, maps out the boundaries of a land parcel. It includes physical features and can document features like elevation levels and angles. Homeowners may get land surveys to fulfill mortgage requirements, resolve disputes with neighbors, to buy or sell their homes, install utilities, parcel out land, or to update an existing survey.

T

Title

A title is legal proof that you own a home. A title includes a physical description of the property, the names of anyone who owns the property, and a list of any liens on the home.

Title insurance

Title insurance protects home buyers and lenders against outside claims to the property. You make a single payment at closing that protects you for as long as you own the home. Lenders require a policy to protect their interests, but an owner’s title policy is optional.

Total interest percentage (TIP)

The total interest percentage tells you the amount of interest you’ll pay over the life of your mortgage loan. Your lender figures the TIP by adding the scheduled interest payments and dividing the total by the loan amount to get a percentage. You can learn more about the TIP on your Loan Estimate or Closing Disclosure.

Truth in Lending Act (TILA)

The Truth in Lending Act was passed in 1968. It is designed to require lenders to disclose all necessary information during the lending process. TILA is focused on lending costs, while RESPA deals with third-party fees.

U

Unsecured loan

An unsecured loan requires no collateral. In contrast, secured loans are backed by an asset. For example, mortgages are secured loans backed by the home. But student loans and credit cards are unsecured.

Upfront costs

Upfront costs are costs are paid before you get the loan itself. For a mortgage, these are down payment and closing costs

U.S. Department of Agriculture (USDA) loan

The U.S. Department of Agriculture backs USDA loans. These loans are designed for low- to middle-income borrowers in rural areas. It’s a no-down payment loan. Rocket Mortgage doesn’t offer USDA loans at this time

V

Variable rate

A variable rate changes throughout the life of your loan. If you get a mortgage with a variable rate, the interest rate will change based on market conditions at predetermined intervals.

Verified Approval Letter (VAL)

Rocket Mortgage offers a Verified Approval Letter.⁷ Like other mortgage approvals, it involves a credit check and financial information review. Think of it as our term for preapproval because it’s easy for even professionals to mix up prequalification and preapproval in conversation.

Veterans Affairs (VA) loan

The U.S. Department of Veterans Affairs backs VA loans. These loans create affordable homeownership opportunities for buyers with sufficient military or certain service experience. But if you qualify, you can often buy a home with no down payment.

W

Walk-through

A final walk-through gives you one last opportunity to inspect a property before the closing is complete. You can use this time to confirm the property is in the condition you expect and verify the seller has completed everything that was agreed to.

The bottom line: Learning mortgage terms can help you understand the home buying process

When getting a mortgage, you might have a string of new words thrown your way. It’s helpful to get a handle on this vocabulary as you navigate the home buying process.

If you’re ready to purchase a home, start the mortgage process today.

Refinancing may increase finance charges over the life of the loan.

² The 3% down payment option is only available on certain conventional loan products and is not available in all states. Additional terms and conditions may apply.

³ Rocket Mortgage is not acting on behalf of FHA or HUD.

⁴ Rocket Mortgage is a VA-approved lender, not endorsed or sponsored by the Dept. of Veterans Affairs or any government agency.

⁵ Home Equity Loan Product is a second standalone lien and may not be used for piggyback transactions. Valid for loan amounts between $45,000.00 and $500,000.00 (minimum loan amount for properties located in Michigan is $10,000.00). Not available on Ameriprise products. Additional restrictions, terms, and conditions apply. Must meet qualification requirements. This is not a commitment to lend.

⁶ Rate pricing and closing costs dependent on loan qualification requirements and factors including but not limited to credit, income, assets, down payment, product selection and loan amount. This is not a commitment to lend.

⁷ Participation in the Verified Approval program is based on an underwriter’s comprehensive analysis of your credit, income, employment status, assets and debt. If new information materially changes the underwriting decision resulting in a denial of your credit request, if the loan fails to close for a reason outside of Rocket Mortgage’s control, including, but not limited to satisfactory insurance, appraisal and title report/search, or if you no longer want to proceed with the loan, your participation in the program will be discontinued. If your eligibility in the program does not change and your mortgage loan does not close due to a Rocket Mortgage error, you will receive the $1,000. This offer does not apply to new purchase loans submitted to Rocket Mortgage through a mortgage broker. Rocket Mortgage reserves the right to cancel this offer at any time. Acceptance of this offer constitutes the acceptance of these terms and conditions, which are subject to change at the sole discretion of Rocket Mortgage. Additional conditions or exclusions may apply.

Rocket Mortgage is a trademark or service mark of Rocket Mortgage, LLC or its affiliates.