Mortgage Terms,In Plain English.

49 terms

Amortization

Qualifying

The schedule that splits each payment between interest and principal. Early payments are interest-heavy; the balance shifts toward principal over time.

Annual Percentage Rate (APR)

Costs & Fees

A rate figure that folds certain financing costs into the interest rate so loans can be compared. It is a comparison tool, not the rate used to calculate your payment.

Appraisal

Process

An independent opinion of the property's market value. On a VA loan a VA-assigned appraiser also checks the home against the VA's Minimum Property Requirements.

Basic Allowance for Housing (BAH)

Qualifying

A military housing allowance based on duty location, pay grade, and dependency status. Depending on circumstances it may be counted as qualifying income. Always confirm current rates through the official Defense Travel Management Office calculator.

Cash-Out Refinance

Loan Types

A refinance that replaces your existing loan with a larger one and returns the difference in cash. It can also be used to move a non-VA loan into VA financing.

Certificate of Eligibility (COE)

Documents

The document from the Department of Veterans Affairs confirming you have VA home loan entitlement and how much of it is available. Lenders need it to close a VA loan, and it also shows whether you are exempt from the funding fee.

Clear to Close (CTC)

Process

The point where underwriting conditions are satisfied and the file is cleared for closing documents and scheduling.

Closing

Process

The signing appointment where the loan funds and ownership transfers. Bring a government-issued photo ID and be ready for final funds to be wired rather than brought as a check.

Closing Disclosure (CD)

Documents

The final accounting of your loan, provided at least three business days before closing. It mirrors the Loan Estimate's layout so you can compare what you were quoted with what you are actually signing.

Conditions

Process

Items underwriting asks for before the loan can close — an updated pay stub, a letter of explanation, proof a debt was paid. Returning them quickly is the single biggest driver of an on-time closing.

Contingency

Process

A condition in a purchase contract — financing, appraisal, or inspection — that lets a buyer exit under defined circumstances. VA contracts commonly include an amendatory clause tied to the appraised value.

Conventional Loan

Loan Types

A loan that is not government-backed. Typically requires a down payment and, below 20% equity, monthly private mortgage insurance.

Credit Score

Qualifying

A numeric summary of your credit history. The VA does not set a minimum score; individual lenders set their own overlays, so the same file can receive different answers in different places.

DD Form 214 (DD-214)

Documents

The discharge document for separated service members. Commonly used to establish VA home loan eligibility.

Debt-to-Income Ratio (DTI)

Qualifying

Your monthly debt payments, including the proposed mortgage, divided by your gross monthly income. VA guidance references 41% as a benchmark, but the full picture — residual income, credit, and compensating factors — matters more than the single number.

Discount Points

Costs & Fees

An optional up-front payment to lower your interest rate. One point equals one percent of the loan amount. Whether points make sense depends on how long you keep the loan.

Earnest Money

Process

A good-faith deposit made with your offer, held in escrow and typically credited toward your costs at closing.

Entitlement

VA Benefit

The amount of guaranty the VA will put behind your loan. Full entitlement means no VA loan limit applies to what you can finance, as long as you can qualify on credit and income. Partial entitlement means the county loan limit becomes part of the guaranty math.

Entitlement Code

Documents

A code on your COE indicating the service era or basis for your eligibility. Lenders use it along with your entitlement amount.

Entitlement Restoration

VA Benefit

Getting your used entitlement back, usually after the VA loan is paid off. A one-time restoration is also available in some cases when the loan is paid in full but the home is kept.

Escrow

Costs & Fees

Two meanings. During the transaction, a neutral third party holds funds and documents. After closing, an escrow account collects part of your property taxes and insurance with each payment so the bills get paid when due.

Escrow Holdback

Process

Funds held after closing until a required repair is finished. Allowed in limited situations and subject to program rules.

Interest Rate Reduction Refinance Loan (IRRRL)

Loan Types

A VA-to-VA refinance designed to move an existing VA loan into another VA loan, typically with less documentation. It generally requires an existing VA loan and must meet VA's benefit tests.

Jumbo Loan

Loan Types

A loan larger than the conforming limit for the area. With full VA entitlement there is no VA loan limit, so a high loan amount is not automatically a jumbo scenario.

Lender Credit

Costs & Fees

Money a lender applies toward your closing costs, usually in exchange for a higher interest rate. The opposite trade-off from discount points.

Loan Estimate (LE)

Documents

A standardized three-page form a lender must give you within three business days of your application. It shows the loan amount, interest rate, estimated monthly payment, closing costs, and cash needed at closing so you can compare offers side by side.

Loan-to-Value (LTV)

Qualifying

The loan amount divided by the property's value. A zero-down VA purchase is typically 100% LTV before the funding fee.

Minimum Property Requirements (MPRs)

VA Benefit

VA standards meant to confirm a home is safe, structurally sound, and sanitary. They are not a home inspection — you should still order your own inspection.

Net Tangible Benefit

Qualifying

The test showing a refinance actually helps you — usually a lower rate, a lower payment, or a move from an adjustable to a fixed rate. VA refinances must demonstrate it.

Notice of Value (NOV)

Process

The VA's statement of the property's value and any repair conditions that must be satisfied before the loan can close.

Occupancy Requirement

VA Benefit

VA financing is for a home you intend to occupy as your primary residence. Military circumstances such as PCS orders and deployment have specific rules, including spouse occupancy in some cases.

Permanent Change of Station (PCS)

Qualifying

A military relocation order. PCS timing affects occupancy, closing dates, and whether a current home is sold or retained as a rental.

PITI

Costs & Fees

Principal, interest, taxes, and insurance — the full monthly housing figure lenders use when reviewing affordability.

Pre-Approval

Process

A lender's written assessment, after reviewing your income, assets, and credit, of the loan amount you appear able to qualify for. It is stronger than a pre-qualification but is not a final loan commitment.

Pre-Qualification

Process

An early estimate based on information you provide, usually without document verification. Useful for planning, but sellers take pre-approvals more seriously.

Prepaids

Costs & Fees

Costs you pay up front for items that will keep recurring — homeowners insurance for the first year, prepaid interest, and the initial deposit into your escrow account. They are a cost of owning, not a lender fee.

Principal & Interest (P&I)

Costs & Fees

The portion of your monthly payment that repays the loan balance plus the interest charged. Taxes, insurance, and HOA dues are additional.

Private Mortgage Insurance (PMI)

Costs & Fees

Monthly insurance that protects the lender on many low-down-payment conventional loans. VA loans do not carry monthly mortgage insurance — one of the benefit's largest long-term advantages.

Rate Lock

Process

An agreement that holds your interest rate for a set number of days while your loan is processed. Locks have expiration dates and extensions can carry a cost.

Recoupment Period

Qualifying

How long it takes the monthly savings on a refinance to pay back the costs of doing it. VA rules set limits on recoupment for certain refinances.

Residual Income

Qualifying

A VA-specific measure of the money left each month after your mortgage payment, other debts, taxes, and estimated utilities. The VA publishes minimums by family size and region, and it is one reason VA loans have historically performed well.

Second-Tier Entitlement

VA Benefit

Using remaining VA entitlement for a second VA loan while a first VA loan is still open. A down payment is often required because only part of your guaranty is left.

Seller Concessions

Costs & Fees

Money the seller agrees to put toward your closing costs. VA rules limit certain concessions, and they must be written into the purchase contract.

Statement of Service

Documents

A letter signed by an appropriate command authority used by active-duty members to document service for eligibility purposes.

Title Insurance

Costs & Fees

Coverage protecting against ownership claims or defects in the property's title history. Lender's coverage is required; an owner's policy is optional but common.

Underwriting

Process

The review where a lender verifies your income, assets, credit, and the property against program guidelines and decides the conditions required to close.

VA Amendatory Clause

Documents

A required contract provision letting a VA buyer walk away without losing earnest money if the property appraises below the purchase price.

VA Funding Fee

Costs & Fees

A one-time fee paid to the VA that helps keep the program running without monthly mortgage insurance. The percentage depends on your down payment and whether this is a first or subsequent use. It can usually be financed into the loan, and Veterans receiving VA compensation for a service-connected disability are generally exempt.

VA Loan Assumption

Loan Types

A qualified buyer taking over an existing VA loan, including its interest rate. It requires lender or VA approval, and the seller's entitlement usually stays tied up unless it is substituted by an eligible Veteran.

Definitions are educational and simplified. Program rules change and individual lender requirements vary. Nothing here is a loan commitment, an approval, or an offer of terms. Military Mortgage LLC — NMLS #Coming Soon. Licensing in progress.