Rate Buydown
A financing technique where you pay extra upfront (permanent) or the seller pays (temporary) to reduce your interest rate.
Example: 3-2-1 buydown reduces rate by 3%, 2%, 1% for the first three years.
Learning Hub
Master your mortgage knowledge
Clear, no-jargon guides to help you understand mortgages, payments, and refinance decisions.
Beginner friendlyNo jargonExpert reviewed
Essential Mortgage Terms
Understanding these key terms will help you navigate the mortgage process with confidence.
DTOI (Debt-to-Income)
The percentage of your monthly gross income that goes toward debt payments. Critical for loan approval.
Example: $600 debt payments ÷ $5,000 income = 12% DTOI ratio.
PITI
Principal, Interest, Taxes, and Insurance – the four components of your monthly mortgage payment.
Example: $1,500 P&I + $400 taxes + $150 insurance = $2,050 PITI.
APR (Annual Percentage Rate)
The true cost of your loan including interest rate plus fees, expressed as a yearly rate.
Example: 6.5% interest rate with fees might have 6.8% APR.
Private Mortgage Insurance (PMI)
Insurance you pay if your down payment is less than 20%, protecting the lender if you default.
Example: $300K loan with 10% down ≈ $200–300/month PMI.
Escrow Account
An account where your lender holds money for property taxes and insurance, paying them when due.
Example: $400/month collected to cover a $4,800 annual tax bill.
Closing Costs
Fees and expenses you pay to finalize your mortgage, typically 2–5% of the loan amount.
Example: $400K loan = $8,000–20,000 in closing costs.
Loan-to-Value (LTV)
The loan amount divided by the home's value, expressed as a percentage.
Example: $320K loan ÷ $400K home value = 80% LTV.
Points (Discount Points)
Upfront fees paid to reduce your interest rate. One point equals 1% of the loan amount.
Example: 2 points on a $400K loan = $8,000 for roughly a 0.5% rate reduction.
Amortization
The gradual repayment of your loan through regular payments, with interest decreasing and principal increasing over time.
Example: Early payments are heavily interest (for example, 80% interest, 20% principal).
ARM (Adjustable Rate Mortgage)
A loan with an interest rate that can change after an initial fixed period based on market conditions.
Example: 5/1 ARM is fixed for 5 years, then adjusts annually.
Underwriting
The process where lenders evaluate your credit, income, assets, and the property to approve your loan.
Example: Reviewing pay stubs, tax returns, bank statements, and the appraisal.
Pre-Qualification vs Pre-Approval
Pre-qualification is a quick estimate; pre-approval involves documentation and a credit check.
Example: Pre-qualification ~10 minutes; pre-approval ~1–3 days with documentation.
Fixed vs Adjustable Rate
Fixed rates stay the same for the full term; adjustable rates can change over time.
Example: 30-year fixed at 6.5% vs 5/1 ARM at 5.5% that adjusts after 5 years.
Conforming vs Jumbo Loans
Conforming loans meet standard loan limits; jumbo loans exceed them and often have stricter requirements.
Example: In 2025, conforming limit is about $766,550 in many areas, higher in expensive markets.
Rate Lock
Agreement to hold your interest rate for a set period while your loan is processed.
Example: A 30–60 day rate lock protects you from rate increases while your loan is approved.