Mortgage Terms, Plain English
Every term California buyers, refinancers, and investors need to know — with direct links to the relevant loan program or quote form.
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Adjustable-Rate Mortgage (ARM)
A loan with an interest rate that changes periodically after an initial fixed period (e.g., 5/1 ARM = fixed 5 years, then adjusts annually). ARMs often start lower than fixed rates but carry rate risk if rates rise.
Compare ARM vs FixedAmortization
The process of paying off a loan through regular installment payments. Each payment covers both interest and principal — early payments are mostly interest; later ones shift toward principal.
Calculate your paymentAnnual Percentage Rate (APR)
The true yearly cost of a loan, including the interest rate plus lender fees (origination, points, etc.), expressed as a percentage. APR is always higher than the interest rate and is the best apples-to-apples comparison across lenders.
Get a rate quoteAsset-Based Loan
A loan where qualification is based on liquid assets (savings, investments, retirement accounts) rather than income. Ideal for retirees or self-employed borrowers with significant assets but irregular income.
Apply for asset-based loanAppraisal
An independent, licensed assessment of a property's market value. Required by lenders before approving a purchase or refinance loan. If the appraised value comes in below the purchase price, it can affect your financing.
B
Bank Statement Loan
A non-QM loan where income is verified using 12–24 months of bank statements instead of W-2s or tax returns. Popular with self-employed borrowers whose tax returns understate actual cash flow.
Apply for bank statement loanBridge Loan
Short-term financing that bridges the gap between buying a new home and selling your current one. Typically 6–12 months, allowing you to move without waiting for your sale to close.
Ask about bridge financingBuydown
A financing strategy where points are paid upfront to lower the interest rate — temporarily (2-1 buydown) or permanently. Sellers or builders sometimes offer buydowns as an incentive.
Ask about buydown optionsC
Cash-Out Refinance
Refinancing your existing mortgage for more than you owe and receiving the difference as cash. Lets you tap home equity for renovations, debt payoff, or investment — without selling.
Get cash-out refi quoteClosing Costs
Fees paid at loan closing, typically 2–5% of the loan amount. Includes lender fees, title insurance, appraisal, escrow, prepaid taxes and insurance, and recording fees.
Conforming Loan
A conventional loan that meets Fannie Mae and Freddie Mac guidelines, including loan limits ($806,500 in most of California for 2025). Conforming loans generally get the best rates.
Check conforming loan optionsConventional Loan
Any mortgage not backed by a government agency (FHA, VA, USDA). Conventional loans require stronger credit and down payments but offer fewer restrictions and lower long-term costs for qualified buyers.
Get conventional loan quoteCredit Score (FICO)
A 300–850 score representing creditworthiness. Most conventional loans require 620+; FHA allows 580+; jumbo lenders often want 700+. Your score directly affects your rate — even small improvements can save thousands.
D
Debt-to-Income Ratio (DTI)
Your monthly debt payments divided by gross monthly income. Most conventional loans cap DTI at 43–50%. High DTI is a common reason for loan denial — your broker can help you restructure to qualify.
Talk to a broker about DTIDown Payment
The cash you pay upfront toward the purchase price. Conventional loans can go as low as 3–5%; FHA requires 3.5%; jumbo and investment loans often require 20–25%.
Find a low-down-payment loanDSCR Loan (Debt Service Coverage Ratio)
An investment property loan where qualification is based on the property's rental income vs. its mortgage payment — not your personal income. A DSCR ≥ 1.0 means rent covers the mortgage. No W-2s or tax returns required.
Apply for DSCR loanE
Earnest Money
A deposit (typically 1–3% of the purchase price) paid by the buyer when making an offer to show good faith. Applied toward down payment or closing costs at close.
Equity
The difference between your home's current market value and what you owe on it. Equity grows as you pay down your mortgage and as your home appreciates.
Tap your equityEscrow
A neutral third-party account that holds funds during a transaction or, after closing, collects monthly property tax and insurance payments from you and pays them on your behalf.
F
FHA Loan
A government-backed loan insured by the Federal Housing Administration. Requires just 3.5% down and accepts credit scores as low as 580. Popular with first-time buyers and those rebuilding credit. Requires mortgage insurance for the life of the loan.
Apply for FHA loanFixed-Rate Mortgage
A loan where the interest rate never changes for the life of the loan. Offers payment predictability — no surprises, ever. Available in 10, 15, 20, and 30-year terms.
Get a fixed-rate quoteFix-and-Flip Loan
Short-term financing for investors buying, renovating, and selling a property. Typically 6–18 months, based on the after-repair value (ARV). Higher rates than traditional mortgages reflect the shorter term and risk.
Apply for fix-and-flip loanG
Good Faith Estimate (GFE) / Loan Estimate
A standardized form lenders must provide within 3 business days of application, detailing estimated loan costs. Use it to compare offers across lenders — all lenders use the same format.
Get a loan estimateH
HELOC (Home Equity Line of Credit)
A revolving line of credit secured by your home's equity, similar to a credit card. Draw and repay as needed during the draw period (typically 10 years). Variable rate. Useful for ongoing projects or emergency funds.
Apply for HELOCHigh-Balance Loan
A conforming loan that exceeds the standard limit but falls within county-specific high-cost limits (up to $1,209,750 in LA, Orange, and San Diego counties). Rates slightly higher than standard conforming, much lower than jumbo.
Check high-balance limitsHOA (Homeowners Association)
Monthly fees for properties in planned communities. HOA dues affect your DTI calculation and must be disclosed to your lender.
I
Interest Rate
The base cost of borrowing, expressed as an annual percentage of the loan balance. Different from APR — does not include lender fees.
See today's ratesInvestment Property Loan
Financing for a property you won't live in. Typically requires 20–25% down and a higher rate than primary residence loans. DSCR loans let you qualify on rental income rather than personal income.
Apply for investment property loanJ
Jumbo Loan
A loan that exceeds conforming limits — above $806,500 in most CA counties or $1,209,750 in high-cost counties. Requires stronger credit (usually 700+), larger down payments (10–20%), and more reserves.
Apply for jumbo loanL
Loan-to-Value (LTV)
The ratio of your loan amount to the property's appraised value. Lower LTV = less risk for the lender = better rates. 80% LTV or below eliminates PMI on conventional loans.
Lock (Rate Lock)
A lender guarantee that your interest rate won't change for a set period (typically 30–60 days) while your loan processes. Protects you from rate increases before closing.
Get a rate lock quoteM
Mortgage Broker
A licensed intermediary who shops your loan across multiple wholesale lenders to find the best rate and terms. Unlike banks, brokers work for you — not the lender — and have access to rates the public can't get directly.
Work with Better OffersMortgage Insurance Premium (MIP)
Insurance required on FHA loans, paid monthly and as an upfront fee. Unlike PMI on conventional loans, MIP typically lasts the life of the loan unless you put 10%+ down.
Compare FHA vs conventionalN
Non-QM Loan
A 'Non-Qualified Mortgage' — any loan that doesn't meet Fannie/Freddie guidelines. Includes bank statement loans, DSCR loans, and asset-based loans. Serves borrowers with non-traditional income documentation.
Explore non-QM optionsO
Origination Fee
A lender fee for processing your loan, typically 0.5–1% of the loan amount. Can often be negotiated or offset by accepting a slightly higher rate (lender credit).
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PITI
Principal, Interest, Taxes, and Insurance — the four components of a monthly mortgage payment. Lenders use PITI (plus HOA if applicable) to calculate your housing expense ratio.
Calculate your PITIPMI (Private Mortgage Insurance)
Insurance required on conventional loans when your down payment is less than 20%. Typically 0.5–1.5% annually, added to your monthly payment. Cancels automatically when LTV reaches 80%.
Avoid PMI — explore optionsPoints (Discount Points)
Prepaid interest paid at closing to permanently lower your rate. One point = 1% of the loan amount. Whether buying points makes sense depends on how long you plan to keep the loan.
Pre-Approval
A lender's written commitment to lend up to a specified amount, based on verified income, assets, and credit. Stronger than pre-qualification — sellers in CA's competitive market often require it.
Get pre-approvedR
Rate-and-Term Refinance
Refinancing to get a lower rate, change your loan term, or both — without taking cash out. Goal is to reduce monthly payment or pay off the loan faster.
Get refinance quoteReserves
Assets you have left after closing — typically measured in months of PITI. Most lenders require 2–6 months of reserves; jumbo and investment loans may require 12+.
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Second Mortgage
A loan secured by your home that sits behind your primary mortgage in lien priority. Includes HELOCs and home equity loans. Higher rates than first mortgages due to subordinate position.
Explore second mortgage optionsT
Title Insurance
A one-time policy protecting against defects in property ownership — liens, errors in public records, forged documents. Lender's title insurance is required; owner's title insurance is strongly recommended.
Title Search
A review of public records to verify the seller legally owns the property and that there are no outstanding liens, judgments, or claims that could affect your ownership.
U
Underwriting
The process where a lender analyzes your file — income, credit, assets, property — to make a final loan decision. Underwriting is the last major hurdle before closing approval.
V
VA Loan
A government-backed loan for eligible veterans, active duty service members, and surviving spouses. No down payment required, no PMI, competitive rates, and no loan limit for full entitlement. One of the best mortgage products available.
Apply for VA loanW
Wholesale Lender
A lender that works exclusively through mortgage brokers (not directly with the public). Wholesale rates are consistently lower than retail bank rates — which is why working with a broker often saves borrowers money.
Access wholesale ratesStill have questions?
Talk to a licensed California mortgage broker — no jargon, no pressure, just straight answers.