Mortgage Glossary
35+ Terms Explained in Plain English. Mortgage paperwork is full of terms that sound more complicated than they are. Bookmark this page — you'll want to refer back to it.
Adjustable-Rate Mortgage (ARM)
A mortgage where the interest rate is fixed for an initial period (usually 5, 7, or 10 years), then adjusts periodically based on market conditions. Your payment can go up or down after the fixed period ends. ARMs can make sense if you plan to sell or refinance before the adjustment kicks in.
Amortization
The process of paying off your mortgage over time through regular monthly payments. In the early years of your loan, most of your payment goes toward interest. Over time, more goes toward principal. An amortization schedule shows exactly how this breaks down each month.
Annual Percentage Rate (APR)
The true yearly cost of your loan, expressed as a percentage. APR includes the interest rate plus fees, so it's a better comparison tool than the interest rate alone when shopping lenders.
Appraisal
An independent estimate of your home's market value, required by most lenders before they'll approve your loan. If the appraisal comes in lower than the purchase price, it can affect how much you can borrow.
Appraised Value
The dollar value assigned to a property by a licensed appraiser. Lenders use this — not the purchase price — to determine how much they'll lend.
Cash-Out Refinance
A refinance where you borrow more than you owe on your current mortgage and receive the difference in cash. Homeowners use this to fund home improvements, consolidate debt, or cover large expenses.
Closing
The final step in the home buying process where you sign all the paperwork, pay closing costs, and officially take ownership of the home. In Texas, closings typically happen at a title company.
Closing Costs
Fees paid at closing, typically 2–5% of the loan amount. These include lender fees, appraisal, title insurance, prepaid taxes and insurance, and more. Sometimes negotiable — sellers can contribute toward closing costs.
Closing Disclosure (CD)
A document your lender is required to provide at least 3 business days before closing. It outlines all final loan terms and closing costs. Review it carefully and compare it to your Loan Estimate.
Conventional Loan
A mortgage not backed by the government (unlike FHA, VA, or USDA loans). Conventional loans typically require a higher credit score (620+) but offer more flexibility and lower costs for borrowers with strong credit.
Credit Score
A numerical score (300–850) that represents your creditworthiness. For mortgages, scores above 740 typically get the best rates. FHA loans allow scores as low as 580 with 3.5% down.
Debt-to-Income Ratio (DTI)
Your total monthly debt payments divided by your gross monthly income. Most lenders prefer a DTI below 43%, though some programs allow higher. Lowering your DTI — by paying down debt or increasing income — can improve your approval odds and rate.
Down Payment
The upfront cash you pay toward the home purchase price. The remainder is financed through your mortgage. Down payments range from 0% (VA and USDA loans) to 3.5% (FHA) to 20% or more (conventional).
Earnest Money
A deposit made when you submit an offer on a home to show the seller you're serious. Typically 1–2% of the purchase price. It's applied toward your down payment or closing costs at closing.
Equity
The difference between your home's current market value and what you still owe on your mortgage. Equity grows as you pay down your loan and as home values increase. You can borrow against equity through a cash-out refinance or home equity loan.
Escrow
An account managed by your lender that holds funds for property taxes and homeowner's insurance. A portion of your monthly mortgage payment goes into escrow, and the lender pays your tax and insurance bills when they're due. This is standard practice in Texas.
FHA Loan
A mortgage insured by the Federal Housing Administration. FHA loans are popular with first-time buyers because they require lower credit scores and smaller down payments than conventional loans. In Harris County (Kingwood), the 2026 FHA loan limit is $541,287 for a single-family home.
Fixed-Rate Mortgage
A mortgage where the interest rate stays the same for the entire loan term — typically 15 or 30 years. Your principal and interest payment never changes, making budgeting predictable.
Hard Inquiry
A credit check that occurs when you formally apply for a mortgage. It may temporarily lower your score by a few points. Multiple mortgage applications within 14–45 days are typically counted as one inquiry by credit bureaus, so don't be afraid to shop around.
Homeowner's Insurance
Insurance that covers your home against damage from fire, storms, theft, and more. Required by lenders. Your premium is typically collected monthly through your escrow account.
HOA (Homeowners Association)
An organization in some communities that manages shared amenities and enforces rules. HOA fees are a monthly expense that affects your debt-to-income ratio. Many Kingwood neighborhoods have HOAs.
Interest Rate
The percentage the lender charges you to borrow money, expressed annually. Distinct from APR — the interest rate doesn't include fees. Even a small rate difference (0.25%) can mean thousands of dollars over the life of a loan.
Loan Estimate
A standardized 3-page document your lender must provide within 3 business days of your application. It outlines the estimated loan terms, monthly payment, and closing costs. Use it to compare offers from multiple lenders.
Loan-to-Value Ratio (LTV)
Your loan amount divided by the home's appraised value, expressed as a percentage. A lower LTV means more equity and typically a better rate. Lenders use LTV to determine risk — above 80% LTV usually requires PMI.
Lock (Rate Lock)
An agreement with your lender to hold a specific interest rate for a set period — usually 30, 45, or 60 days — while your loan is being processed. Protects you from rate increases before closing.
MIP (Mortgage Insurance Premium)
The insurance required on FHA loans. Similar to PMI but applies to all FHA loans regardless of down payment. Includes an upfront fee (1.75% of the loan amount) and an annual premium paid monthly.
Origination Fee
A fee charged by the lender to process your loan, typically 0.5–1% of the loan amount. Listed on your Loan Estimate and Closing Disclosure.
PMI (Private Mortgage Insurance)
Insurance required on conventional loans when your down payment is less than 20%. Protects the lender — not you — if you default. PMI typically costs 0.5–1.5% of the loan amount annually. It can be removed once you reach 20% equity.
Pre-Approval
A lender's written commitment to loan you up to a certain amount, based on a review of your income, credit, and assets. Stronger than pre-qualification — most sellers in the Kingwood area expect a pre-approval letter before accepting an offer.
Pre-Qualification
An informal estimate of how much you might be able to borrow, based on self-reported information. Less reliable than a pre-approval because it doesn't involve a credit check or document review.
Principal
The original amount you borrowed (not including interest). Each monthly payment reduces your principal balance.
Property Tax
An annual tax assessed by local government based on your home's value. Texas has no state income tax but property taxes are higher than average — typically 2–2.5% in Harris County. Paid through your escrow account monthly.
Rate and Term Refinance
A refinance where you change your interest rate, loan term, or both — without taking cash out. The goal is usually to lower your monthly payment or pay off the loan faster.
Refinance
Replacing your existing mortgage with a new one — usually to get a lower rate, reduce your term, or access equity. Refinancing has closing costs, so it's important to calculate the break-even point.
Title
Legal ownership of a property. Before closing, a title search confirms the seller has the right to sell and there are no liens or disputes on the property.
Title Insurance
Protects the lender (and optionally, you) against any title disputes that arise after closing — like unpaid liens or ownership claims. Required by lenders in Texas; a separate owner's policy is also available and recommended.
Underwriting
The lender's process of verifying your income, credit, assets, and the property before approving your loan. This is the most critical step in the mortgage process. Underwriters may request additional documents — respond quickly to keep things moving.
USDA Loan
A government-backed loan for homes in eligible rural and suburban areas. Offers 0% down payment. Some areas near Kingwood and Houston may qualify — ask me if your target property is eligible.
VA Loan
A mortgage benefit for eligible veterans, active-duty service members, and surviving spouses — backed by the Department of Veterans Affairs. Offers 0% down, no PMI, and competitive rates. One of the best mortgage products available if you've served.