Mortgage Glossary
A comprehensive guide to mortgage terminology. Understand key terms from DSCR and LTV to ARM and PMI.
APR (Annual Percentage Rate)
The true cost of borrowing expressed as a yearly rate. APR includes the interest rate plus fees and costs such as origination fees, discount points, and mortgage insurance. It helps you compare loans from different lenders.
ARM (Adjustable Rate Mortgage)
A mortgage whose interest rate changes periodically based on a market index. ARMs typically have an initial fixed-rate period (e.g., 5 or 7 years) before the rate can adjust. They often start with lower rates than fixed-rate mortgages.
Bank Statement Loan
An alternative documentation loan where income is verified using 12–24 months of bank statements instead of tax returns or W-2s. Ideal for self-employed borrowers whose tax returns don't reflect their true income.
Cash-Out Refinance
A refinance that allows you to borrow more than your current mortgage balance and receive the difference in cash. The cash can be used for home improvements, debt consolidation, or investments.
Closing Costs
Fees paid at loan closing, which may include origination fees, appraisal, title insurance, attorney fees, and recording fees. Closing costs typically range from 2–5% of the loan amount.
Debt-to-Income Ratio (DTI)
A measure of your monthly debt payments divided by your gross monthly income, expressed as a percentage. Lenders use DTI to assess your ability to manage monthly payments. Lower DTI ratios generally improve qualification.
DSCR (Debt Service Coverage Ratio)
For investment properties, DSCR measures whether rental income can cover the mortgage payment. It's calculated as (Monthly Gross Rental Income × 0.75) ÷ Monthly Debt Payment. A DSCR of 1.0 or higher is typically required.
Down Payment
The upfront payment made when purchasing a property, expressed as a percentage of the purchase price. A larger down payment reduces the loan amount and may improve terms and eliminate the need for PMI.
Escrow
A neutral third-party account that holds funds until all conditions of a transaction are met. For mortgages, escrow often holds money for property taxes and homeowners insurance, which the lender pays on your behalf.
Fixed-Rate Mortgage
A mortgage with an interest rate that stays the same for the entire loan term. Monthly principal and interest payments remain constant, providing predictability and protection against rising rates.
LTV (Loan-to-Value Ratio)
The loan amount divided by the property's value or purchase price, expressed as a percentage. An 80% LTV means you're borrowing 80% of the property value. Lower LTVs typically qualify for better rates.
NMLS (Nationwide Multistate Licensing System)
A national registry that licenses mortgage loan originators and companies. NMLS helps consumers verify that their lender is properly licensed. Elevation Financing is NMLS #1843021.
No Income Verification Loan
A loan program that qualifies borrowers based on assets, bank statements, or rental income rather than traditional income documentation like W-2s or tax returns. Designed for self-employed and investors.
Points
Upfront fees paid to lower your interest rate. One point equals 1% of the loan amount. Paying points can reduce your monthly payment over the life of the loan—useful if you plan to stay in the home longer.
Pre-Approval
A lender's conditional commitment to lend you a specific amount based on a preliminary review of your finances. Pre-approval strengthens your offer when buying a home and helps you shop within your budget.
Principal
The original loan amount borrowed, or the portion of the loan that remains unpaid (excluding interest). Each payment reduces the principal, building equity in your property over time.
Private Mortgage Insurance (PMI)
Insurance that protects the lender if you default when your down payment is less than 20%. PMI is typically required on conventional loans until you reach 20% equity. Some alternative programs don't require PMI.
Refinance
Replacing your existing mortgage with a new one, often to secure a lower rate, change loan terms, or access equity. Refinancing may be rate-and-term (same amount) or cash-out (borrow more).
Underwriting
The process by which a lender evaluates your application, verifies your documentation, and decides whether to approve the loan. Underwriting assesses credit, income, assets, and property value.
Have Questions About These Terms?
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