You don’t need to memorize these terms. Use this glossary as a quick reference while talking with lenders, reviewing loan documents, or comparing financing options. Pay special attention to terms tied to new construction, such as builder financing, appraisals, rate locks, and construction-to-permanent loans.
A–C
Adjustable-Rate Mortgage (ARM) A loan with a fixed interest rate for an initial period (often 5, 7, or 10 years) that then adjusts periodically based on market rates.
Appraisal An independent estimate of a home’s value used by the lender to confirm the loan amount. New-home appraisals often consider land value, construction costs, and comparable new builds.
Bridge Loan Short-term financing that helps you buy a new home before selling your current one, using your existing home’s equity as collateral.
Builder Financing Mortgage options offered through a builder’s affiliated or in-house lender, sometimes paired with incentives like closing cost credits or rate buy-downs.
Buydown A temporary or permanent reduction of your interest rate, often paid by the builder or seller as an incentive.
Closing Costs Fees due at closing, including lender charges, title fees, escrow, prepaid taxes, and insurance.
Construction Loan A short-term loan used during the building phase of a home, typically converting to permanent financing once construction is complete.
Construction-to-Permanent Loan (Single-Close Financing) One loan that covers both construction and the permanent mortgage, requiring only one closing.
Conventional Loan A mortgage not backed by the federal government, often requiring higher credit scores and larger down payments than government-backed loans.
Credit Restoration Program Services designed to help improve your credit profile to qualify for better loan terms.
Credit Score A numerical measure of creditworthiness, typically ranging from 300 to 850.
D–F
Debt-to-Income Ratio (DTI) The percentage of your gross monthly income that goes toward recurring debt payments.
Discount Points Optional upfront fees paid at closing to lower your interest rate. One point equals 1% of the loan amount.
Down Payment The portion of the purchase price you pay upfront. Requirements vary by loan type.
Earnest Money Deposit Funds submitted with a purchase contract to show serious intent, typically applied toward closing.
Escrow An account that holds funds for property taxes and homeowners insurance, paid as part of your monthly mortgage payment.
FHA Loan A government-backed loan insured by the Federal Housing Administration, allowing lower down payments and more flexible credit standards.
FICO Score The most commonly used credit score model, based on payment history, debt levels, credit length, new credit, and credit mix.
Financial Profile A snapshot of your income, assets, debts, employment, and credit history used by lenders to evaluate risk.
Fixed-Rate Mortgage A loan with an interest rate that stays the same for the entire loan term.
I–M
Interest The cost of borrowing money, expressed as a percentage of the loan amount.
Job History Your employment track record. Lenders typically prefer at least two years of stable income.
Jumbo Loan A loan that exceeds conforming loan limits, usually requiring higher credit scores and larger down payments.
Loan Estimate (LE) A standardized form outlining estimated loan terms, payments, and closing costs, provided shortly after application.
Loan Term The length of time you have to repay the loan, commonly 30, 20, or 15 years.
Mortgage A legal agreement where a lender provides funds to purchase a home and holds a lien on the property until repayment.
P–R
Preapproval A conditional lender commitment stating how much you’re approved to borrow, based on verified financial information.
Pre-Qualification An informal estimate of how much you may be able to borrow, based on self-reported information.
Principal The amount borrowed, excluding interest.
Private Mortgage Insurance (PMI) Insurance required on many loans when the down payment is less than 20%. Protects the lender and can often be removed later.
Quiet Period The time between loan application and closing when you should avoid financial changes such as new credit or job changes.
Rate Lock A lender guarantee that your interest rate won’t change for a specified period.
Reserves Cash savings a lender may require you to have available after closing.
Reverse Mortgage An FHA-insured loan for homeowners age 62+ that allows home equity to be converted into loan proceeds, repaid when the home is sold or vacated.
S–V
Spending Plan A pre-loan budget outlining mortgage payments, taxes, insurance, and other housing costs.
USDA Rural Loan A government-backed loan offering zero down payment in eligible rural or suburban areas, with income limits.
VA Loan A loan guaranteed by the Department of Veterans Affairs offering no down payment and competitive rates for eligible service members and veterans.
Bottom line: The use of this glossary of home loan terms will get you one step closer to approval and that much closer to your dream home.
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Julie Gordey
A lifelong educator, Julie Gordey, is a retired school administrator. After years of focusing on education, this University of Texas graduate now travels and enjoys freelance writing for BDX and NewHomeSource.com.