APR, escrow, PMI, points — mortgage jargon explained in plain English so you always know what's going on.
The mortgage world loves its acronyms. Here's what they actually mean.
APR (Annual Percentage Rate)
The total yearly cost of your loan expressed as a percentage. It includes the interest rate plus fees, so it's usually slightly higher than your rate. Use APR to compare loan offers apples-to-apples.
Amortization
How your loan payments are split between principal (the amount you borrowed) and interest over time. Early payments are mostly interest; later payments are mostly principal.
Closing Costs
Fees paid at the end of the transaction — typically 2–5% of the purchase price. Includes appraisal, title insurance, origination fees, prepaid taxes, and insurance.
Conventional Loan
A mortgage not backed by a government agency. Usually requires a credit score of 620+ and a down payment of at least 3%. PMI is required if you put less than 20% down.
DTI (Debt-to-Income Ratio)
Your total monthly debt payments divided by your gross monthly income. Most lenders want this below 43%, though some loan programs allow higher.
Escrow
An account held by your lender to pay your property taxes and homeowners insurance. A portion of each mortgage payment goes into escrow so these bills are covered automatically.
FHA Loan
A government-backed loan through the Federal Housing Administration. Popular with first-time buyers because it allows credit scores as low as 580 and down payments as low as 3.5%.
Fixed-Rate Mortgage
A loan where the interest rate stays the same for the entire term (usually 15 or 30 years). Your principal and interest payment never changes.
Adjustable-Rate Mortgage (ARM)
A loan where the rate is fixed for an initial period (e.g., 5 or 7 years) then adjusts periodically based on market conditions. Can start lower than fixed rates.
LTV (Loan-to-Value Ratio)
The loan amount divided by the home's appraised value. An LTV of 80% means you're borrowing 80% and putting 20% down.
PMI (Private Mortgage Insurance)
Insurance you pay when your down payment is less than 20% on a conventional loan. It protects the lender, not you. It drops off once you reach 20% equity.
Points (Discount Points)
Prepaid interest you can buy to lower your rate. One point = 1% of the loan amount. Useful if you plan to stay in the home long-term.
Pre-Approval
A lender's written commitment that you qualify for a specific loan amount based on verified income, assets, and credit. Much stronger than pre-qualification.
Pre-Qualification
An informal estimate of what you might qualify for based on self-reported information. No verification — it's a starting point, not a commitment.
Title Insurance
Protects you and the lender against claims on the property's ownership history. A one-time fee paid at closing.
Underwriting
The process where your lender reviews all your documentation to make a final decision on your loan. This is the last step before clear-to-close.
USDA Loan
A zero-down-payment loan for homes in eligible rural and suburban areas. Income limits apply, but many areas around Washington's cities qualify.
VA Loan
A zero-down, no-PMI loan for eligible veterans, active-duty service members, and surviving spouses. One of the best mortgage products available.
Your interest rate is what you pay on the loan principal. APR includes the interest rate plus lender fees, points, and other costs — so it's always slightly higher. Use APR to compare loan offers from different lenders apples-to-apples.
On conventional loans, PMI automatically drops off when your loan balance reaches 78% of the original home value. You can request removal at 80%. FHA loans have mortgage insurance for the life of the loan if you put less than 10% down.
Fixed-rate is best if you plan to stay in the home long-term — your payment never changes. An ARM can save you money if you plan to sell or refinance within the initial fixed period (typically 5 or 7 years). I can help you compare both options.
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