Mortgage Glossary: Plain English

The terms you'll actually encounter, explained the way I'd explain them across a table. No jargon walls.

Pre-qualification

A rough estimate of what you might be able to borrow, based on self-reported, unverified information. Useful for early planning. NOT a commitment to lend, NOT verified, and sellers don't treat it as meaningful.

Pre-approval

A conditional determination based on VERIFIED income, assets, and credit, reviewed by a licensed loan officer. Carries weight with sellers. Still conditional — not a loan commitment. Typically valid 60–90 days.

Underwritten approval

Your file has been reviewed by an underwriter (beyond the loan officer). The closest thing to a commitment before final conditions are cleared.

APR (Annual Percentage Rate)

The cost of credit expressed as a yearly rate, including certain fees — designed for comparing loan offers. Different from your note rate. When you see a rate advertised, the APR must be shown alongside it.

DTI (Debt-to-Income Ratio)

Your monthly debt payments divided by gross monthly income. Lenders use front-end (housing only) and back-end (all debts) ratios — commonly guided by 28/36 benchmarks.

PITI

Principal, Interest, Taxes, Insurance — the four components of a typical mortgage payment. Often plus PMI and HOA.

PMI (Private Mortgage Insurance)

Insurance on conventional loans with less than 20% down. Typically cancellable at 80% loan-to-value (automatically at 78% for most loans). You pay it; it protects the lender.

MIP (Mortgage Insurance Premium)

FHA's version of mortgage insurance — has both an upfront premium and an annual premium. Rules for removal depend on your down payment and loan date.

Escrow

The account your lender uses to pay your property taxes and homeowner's insurance from your monthly payment.

Loan Estimate

The standardized 3-page form lenders must give you within 3 business days of receiving your application. Use it to compare offers apples-to-apples.

Closing Disclosure

The final standardized form showing your actual loan terms and closing costs. You must receive it 3 business days before closing.

Rate lock

An agreement holding your interest rate for a set period (typically 30–60 days) while your loan processes.

Discount points

Optional upfront fees you pay to reduce your interest rate. One point = 1% of the loan amount. Whether they pay off depends on how long you keep the loan.

Funding fee

A VA loan fee that helps keep the program running. Varies by service history and down payment; some veterans are exempt.

Entitlement

The VA benefit amount available to an eligible veteran — determines how much you can borrow with $0 down.

Conforming loan

A mortgage that meets Fannie Mae/Freddie Mac size and guideline limits. Above those limits = jumbo.

DSCR

Debt Service Coverage Ratio — for investor loans, the property's rental income divided by its mortgage payment. Some investor loans qualify on DSCR instead of your personal income.