Glossary

Mortgage terms, explained.

By Kevin Cunningham, founder of ReadMe Mortgage · Educational guide, not personal lending advice

A no-jargon glossary of the terms you'll see when buying a home or talking about a mortgage.

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APR (Annual Percentage Rate): The true yearly cost of your loan, including the interest rate plus most fees. It helps you compare loans more accurately than the rate alone.
Amortization: How your loan is paid off over time. Early payments go mostly to interest, later payments go mostly to principal.
Appraisal: An independent estimate of a home's market value, ordered by the lender to make sure the loan amount is reasonable.

Closing Costs: One-time fees paid at closing for the loan and the home transfer. Usually 2-5% of the loan amount in California.
Closing Disclosure (CD): A final breakdown of your loan terms and costs, which you must receive at least 3 business days before closing.
DTI (Debt-to-Income Ratio): How much of your gross monthly income goes to debt payments. Lenders use it to assess affordability.
Down Payment: The cash you pay upfront toward the home's purchase price. The rest comes from your loan.

Escrow: A neutral third party that holds money and documents during the transaction, or an account your lender uses to pay property taxes and insurance for you.
Earnest Money: A good-faith deposit (usually 1-3% in California) showing you're serious about buying. It's held in escrow and credited at closing.

FHA Loan: A government-backed loan insured by the Federal Housing Administration, often with lower down payment requirements.

Loan Estimate (LE): A form lenders must provide within 3 business days of your application showing loan terms, estimated payments, and closing costs.

Mello-Roos: A special tax in some California communities (especially newer developments) that funds infrastructure. It adds to your property tax bill.

PITI (Principal, Interest, Taxes, Insurance): Your total monthly housing payment. Principal pays down the loan, interest is the cost to borrow, taxes and insurance are often escrowed.
PMI (Private Mortgage Insurance): Insurance that protects the lender if you put down less than 20%. On conventional loans, it can often be removed once you reach 80% loan-to-value.
Pre-Approval: A lender's written statement of how much they're willing to lend you, based on reviewing your documents and credit.
Principal: The amount you borrowed (or still owe). Your payments go to principal and interest.

Title Insurance: Insurance protecting against claims on the property's title (ownership history). Lenders require it; owner's title insurance protects you.

Questions about any of these terms? Call Kevin at (408) 406-7900.