Mortgage terms in plain English

Loan paperwork is full of words nobody uses at the kitchen table. Here's what the most common ones actually mean — no jargon, no fine print. Every term is in Spanish too.

• Adjustable-Rate Mortgage (ARM) — A loan whose interest rate is fixed for a few years and then adjusts on a set schedule. The early rate is often lower than a fixed loan, but your payment can rise later, so it fits buyers who plan to sell or refinance before the adjustment.
• Amortization — The schedule that shows how each monthly payment splits between interest and principal over the life of the loan. Early on most of the payment goes to interest; later, more goes toward paying down what you owe.
• Annual Percentage Rate (APR) — The yearly cost of your loan including the interest rate plus most lender fees, shown as a percentage. Because it rolls in fees, the APR is usually a little higher than the interest rate and helps you compare offers apples-to-apples.
• Appraisal — An independent estimate of a home's market value done by a licensed appraiser. The lender requires it to confirm the house is worth what you're paying or borrowing against.
• Closing Costs — The fees and prepaid items you pay to finalize a loan — lender charges, title, escrow, taxes, and insurance. In California they usually run about 2% to 5% of the loan amount. Learn more
• Closing Disclosure — The final five-page form that lists your exact loan terms, monthly payment, and closing costs. By law you get it at least three business days before you sign, so you have time to check every number.
• Conforming Loan — A loan that stays at or below the yearly limit set for Fannie Mae and Freddie Mac. Staying under the limit usually means easier approval and better pricing than a jumbo loan. Learn more
• Conventional Loan — A loan that isn't backed by a government program like FHA or VA. It usually asks for stronger credit, but it lets you cancel mortgage insurance once you reach about 20% equity. Learn more
• Credit Score — A number that sums up how you've handled borrowing. Lenders use it to set your rate and decide which programs you qualify for — higher scores generally mean better pricing. Learn more
• Debt-to-Income Ratio (DTI) — The share of your monthly income that goes to debt payments, including the new mortgage. Lenders watch it closely because it shows whether the payment realistically fits your budget. Learn more
• Discount Points — An upfront fee you pay to lower your interest rate. One point costs 1% of the loan amount; it pays off only if you keep the loan long enough to recover that cost in monthly savings. Learn more
• Down Payment — The cash you put toward the purchase price up front. The rest is the loan. Some programs allow as little as 3% down, and VA can be zero for eligible buyers. Learn more
• Earnest Money — A good-faith deposit you put down when your offer is accepted to show the seller you're serious. It's held in escrow and usually applied to your down payment or closing costs at closing.
• Equity — The part of your home you actually own — the home's value minus what you still owe on the mortgage. It grows as you pay down the loan and as the home's value rises.
• Escrow — A neutral third party that holds money and documents during a transaction. It also describes the account your lender uses to collect and pay your property taxes and homeowners insurance with each payment.
• FHA Loan — A government-insured loan with lower down-payment and credit requirements, popular with first-time buyers. It requires mortgage insurance, which on most FHA loans stays for the life of the loan. Learn more
• Fixed-Rate Mortgage — A loan whose interest rate never changes for the whole term, so your principal-and-interest payment stays the same. It's the most predictable option and the most common choice.
• Gift Funds — Money a family member gives you to help with the down payment or closing costs, with no expectation of repayment. Lenders accept it when it's documented with a gift letter and a clear paper trail. Learn more
• Interest Rate — The percentage a lender charges you each year to borrow the money, separate from fees. It's the biggest factor in your monthly principal-and-interest payment.
• ITIN Loan — A home loan for buyers who file taxes with an Individual Taxpayer Identification Number instead of a Social Security number. It lets many hardworking California families buy a home in their own name. Learn more
• Jumbo Loan — A loan larger than the conforming limit for the county. Because the amount is bigger, lenders usually ask for stronger credit, more reserves, and a larger down payment. Learn more
• Loan Estimate — A standard three-page form you get within three business days of applying. It lays out the estimated rate, monthly payment, and closing costs so you can compare lenders side by side.
• Loan-to-Value Ratio (LTV) — The size of your loan compared to the home's value, shown as a percentage. A lower LTV (more equity or a bigger down payment) usually means better pricing and no mortgage insurance.
• Mortgage Insurance (PMI / MIP) — A premium that protects the lender if a borrower with a smaller down payment stops paying. Conventional loans call it PMI and you can cancel it at about 20% equity; FHA calls it MIP and it often lasts the life of the loan. Learn more
• Origination Fee — A fee some lenders charge for processing and setting up your loan, usually a percentage of the amount. It's one of the line items worth comparing when you shop lenders.
• PITI — The four parts of a full mortgage payment: Principal, Interest, Taxes, and Insurance. When you estimate affordability, PITI is the real number to plan around — not just principal and interest. Learn more
• Pre-Approval — A lender's written estimate of how much you can borrow after reviewing your income, assets, and credit. Sellers take a pre-approval seriously because the numbers have actually been checked. Learn more
• Pre-Qualification — A quick, informal estimate of what you might borrow based on numbers you share. It's a helpful starting point but carries less weight than a full pre-approval. Learn more
• Principal — The amount you actually borrowed, not counting interest. Each payment chips away at the principal, and as it shrinks you build equity.
• Rate Lock — A lender's promise to hold your interest rate for a set window — often 30 to 60 days — while your loan is processed. It protects you if rates move up before you close.
• Refinance — Replacing your current mortgage with a new one — usually to lower the rate or payment, change the term, or take cash out of your equity. Learn more
• Title Insurance — A one-time policy that protects you and the lender against ownership problems from the past — unpaid liens, errors in records, or competing claims to the property.
• Underwriting — The lender's review of your full file — income, assets, credit, and the appraisal — to make the final decision on your loan. It's the step where everything you submitted gets verified. Learn more
• VA Loan — A loan backed by the Department of Veterans Affairs for eligible veterans, service members, and some surviving spouses. It often allows zero down and charges no monthly mortgage insurance. Learn more