Mortgage paperwork comes with its own vocabulary. Two lenders can quote what looks like the same loan, and the real difference only shows up once you know what the APR, the points, the lender credits and the cash to close are telling you.
This glossary explains the mortgage terms you’re most likely to run into while buying a home in Greater Houston and Fort Bend County. For each one you’ll find what it means, why it matters to you and, where it helps, a question worth asking your lender.
I’m a real estate broker, not a lender. This page is general education, not a loan offer or financial, tax or legal advice. Your rate, your fees and whether you qualify come from your lender, so confirm anything that matters with them in writing.
How to use this page: keep it open next to your Loan Estimate. The terms are grouped the way you’ll meet them: the loan documents, the price of the loan, loan types, qualifying, the monthly payment, closing and life after closing. Or jump straight to a term below.
The Two Forms That Hold Everything
Almost every term on this page shows up on one of two standard federal forms. Learn where things sit on these two and the rest gets easier.
Loan Estimate
A standard three-page form a lender has to give you within three business days of receiving your mortgage application. It shows the estimated interest rate, monthly payment, closing costs and cash to close, and it flags features like a prepayment penalty or a payment that can change.
Why it matters: every lender uses the same layout, so it’s the cleanest way to compare offers side by side. Getting one doesn’t mean you’re approved. It shows the terms the lender expects to offer if you move forward.
Ask your lender: “Can you give me a Loan Estimate for the same loan amount, loan type and term as the other quotes I have?” Rates move daily, so ask for quotes on the same day when you can.
Closing Disclosure
A five-page form with the final terms and costs of your loan. You must receive it at least three business days before you close.
Why it matters: those three days are your window to compare the final numbers with your Loan Estimate and ask about anything that moved. Don’t wait for the closing table to read it.
Ask your lender: “Which numbers changed from my Loan Estimate, and why?”
Closing costs
The fees and charges paid at closing on top of your down payment. They typically include the lender’s charges, the appraisal, title insurance and title services, government recording fees, prepaid interest, your first homeowners insurance premium and the deposit that starts your escrow account.
Where you’ll see it: page 2 of the Loan Estimate breaks them out, including a list of services you’re allowed to shop for yourself.
Cash to close
The total amount you bring to closing. Roughly, it’s your down payment plus closing costs, minus credits and money you’ve already paid, such as earnest money. It appears on page 1 of both the Loan Estimate and the Closing Disclosure.
Why it matters: this is the number to plan your savings around, not the down payment alone. It’s also the money criminals try to steal with fake wiring instructions. Never wire funds based on an email. Call the title company at a number you found yourself. My guide to avoiding real estate wire fraud in Houston explains how these scams work.
Prepaids and initial escrow deposit
Prepaids are costs you pay up front at closing for things that come due later: typically interest from your closing date to the end of that month, and the first year of your homeowners insurance premium. The initial escrow deposit is money collected at closing to start your escrow account so the servicer has a cushion when the first tax and insurance bills arrive.
Why it matters: these amounts aren’t lender fees, so a lower number here doesn’t mean a cheaper loan. They depend partly on your closing date, your insurance premium and the property’s tax bill.
The Price of the Loan: Rates, Points and Credits
Interest rate
The yearly cost of borrowing, stated as a percentage of the loan. Your interest rate and loan amount set your principal and interest payment. The rate you’re offered depends on things like your credit, your down payment, the loan type and whether you pay points.
Annual percentage rate (APR)
A broader measure of the cost of borrowing than the interest rate. The APR folds in the interest rate plus points, mortgage broker fees and certain other charges, so it’s usually higher than the rate itself.
Why it matters: APR helps you compare similar loans with different fee structures. It has limits. On an adjustable-rate mortgage it doesn’t show the highest rate the loan could reach, and comparing a fixed-rate APR with an ARM’s APR can mislead you.
Where you’ll see it: the Comparisons section on page 3 of the Loan Estimate.
Discount points
An upfront fee you pay at closing in exchange for a lower interest rate. One point equals 1 percent of the loan amount, and points don’t have to be whole numbers.
Why it matters: paying points makes sense only if you keep the loan long enough for the lower payment to earn back what you paid. Sell or refinance early and you may never break even.
Where you’ll see it: Section A on page 2 of the Loan Estimate and the Closing Disclosure.
Ask your lender: “Show me this loan with no points, with points and with lender credits, and how many months each option takes to break even.”
Lender credit
Points in reverse. You accept a higher interest rate, and the lender covers part of your closing costs in return. Lender credits appear as a negative number in Section J on page 2 of the Loan Estimate.
Why it matters: credits reduce the cash you need at closing but raise your monthly payment for as long as you keep the loan. They can be a good fit if cash is tight or you expect a shorter stay.
Origination charges
What the lender charges to process, underwrite and fund your loan. They sit in Section A on page 2 of the Loan Estimate, alongside any points.
Why it matters: Section A is the part of the form that’s most directly the lender’s own pricing, which makes it one of the best places to compare offers.
Rate lock
An agreement that holds your interest rate for a set period, commonly 30, 45 or 60 days, as long as you close within that window and nothing in your application changes. Page 1 of the Loan Estimate shows whether your rate is locked and until when.
Why it matters: a lock can still change if your loan amount, credit, income documentation or the appraisal changes. Extending an expired lock can be expensive. On new construction, where completion dates can move, ask about the lock timeline before you commit.
Ask your lender: “What happens, and what does it cost, if closing slips past the lock date?”
Temporary buydown
Money paid up front at closing that lowers your monthly payment for the first year or first few years. In a 2-1 buydown, for example, the payment is figured at 2 percentage points below the note rate in year one and 1 point below in year two. The money can come from a builder, a seller, a lender or you.
Why it matters: the loan’s actual rate doesn’t change, and under Fannie Mae’s rules you’re qualified at the full note rate. Your payment steps up on a set schedule until you’re paying the full amount. Temporary buydowns are a common builder incentive on new construction around Houston. My guide to ARM vs. fixed-rate mortgages explains why a buydown is not an ARM.
Ask your lender: “What is the note rate, who is paying for the buydown, and what happens to unused funds if I sell or refinance early?”
Seller and builder concessions
Money a seller or builder puts toward your closing costs. Fannie Mae calls these interested party contributions, a category that includes the seller, the builder or developer, the real estate agents and anyone else who benefits from a higher sale price.
Why it matters: loan programs cap how much of this money can be used, and the cap depends on the loan type, your down payment and how you’ll use the home. Anything over the limit can reduce the price the lender counts. Builders often prefer incentives and credits over a price cut, which my guide to buying new construction in Texas covers.
Ask your lender: “What’s the most the seller or builder can contribute on this loan?” Ask before you negotiate, not after.
Loan Types You’ll Hear About
Conventional loan
A mortgage that isn’t insured or guaranteed by a government agency. Most conventional loans are conforming, meaning they fall under the loan limit the Federal Housing Finance Agency sets each year for loans Fannie Mae and Freddie Mac can buy. With less than 20 percent down, a conventional loan usually carries private mortgage insurance.
Jumbo loan
A mortgage larger than the conforming loan limit. Jumbo loans can cost more to obtain than conforming loans, and lenders often set their own requirements for them. The limit changes every year, so check the current figure rather than relying on an old number.
FHA loan
A mortgage insured by the Federal Housing Administration and made by an FHA-approved private lender. FHA loans generally allow a smaller down payment and more flexible credit than many conventional loans. Every FHA loan requires mortgage insurance, with an upfront premium that can be added to the loan plus an ongoing monthly premium.
Why it matters: FHA sets a maximum loan amount by county. You can look up the current limit for Harris, Fort Bend or any other county on HUD’s FHA mortgage limits page.
VA loan
A mortgage guaranteed by the U.S. Department of Veterans Affairs for eligible service members, veterans and some surviving spouses, and made by private lenders. Many borrowers can buy with no down payment as long as the price doesn’t exceed the appraised value, and there’s no monthly mortgage insurance. Most borrowers pay a one-time VA funding fee instead.
Why it matters: you’ll need a Certificate of Eligibility, and the lender still sets credit and income requirements on top of VA’s rules.
USDA loan
A mortgage made by an approved private lender and guaranteed by USDA Rural Development for homes in eligible rural areas. Households must fall under an income limit for the area, and there’s no down payment for those who qualify.
Why it matters: eligibility is set address by address. Don’t assume a home on the edge of the Houston area does or doesn’t qualify. Check the specific address on USDA’s eligibility site and confirm with your lender.
Fixed-rate mortgage
A loan whose interest rate stays the same for the full term, so your principal and interest payment never changes. Your total payment can still change, because property taxes and insurance collected through escrow go up and down.
Adjustable-rate mortgage (ARM)
A loan whose rate is fixed for an initial period and then adjusts on a schedule. The new rate is based on an index plus a margin, within limits called caps. A 5/6m ARM, for example, keeps its starting rate for five years and can then adjust every six months.
Why it matters: the starting payment can be lower, but the payment after adjustment is the number to plan around. My ARM vs. fixed-rate guide walks through the comparison and the questions to ask.
Index
A published market interest rate that an ARM’s new rate is tied to. Your loan documents name which index. When the index moves, your rate can move at the next adjustment.
Margin
A fixed number of percentage points the lender adds to the index to set an ARM’s rate. It’s set when you close and doesn’t change. Index plus margin is called the fully indexed rate.
Rate cap
A limit on how much an ARM’s rate can change: at the first adjustment, at each later adjustment and over the life of the loan. Caps are what let you work out a worst-case payment.
Loan term
How long you have to repay the loan, most often 15 or 30 years. A shorter term usually means a higher monthly payment but much less interest paid over the life of the loan.
Qualifying: How a Lender Sizes Up the Loan
Prequalification
An early estimate of how much a lender might lend you, often based on information you provide without much verification.
Preapproval
A lender’s written statement that it’s willing to lend up to a certain amount, usually after checking your credit and reviewing documents like pay stubs and bank statements. Neither a prequalification nor a preapproval is a loan commitment, and lenders don’t use the two words the same way.
Why it matters: sellers want to know your financing is real, and getting preapproved early gives you time to fix credit problems before you’re under contract. Look past the label to what the lender actually checked.
Ask your lender: “What did you verify for this letter, and what still has to happen before final approval?”
Credit report
A record of your credit accounts and how you’ve paid them. You can get your reports free at AnnualCreditReport.com, the official site for free credit reports. Check them early, because correcting an error takes time.
Credit score
A number that predicts how likely you are to repay a loan, calculated from your credit report. Your scores affect whether you qualify and the pricing you’re offered.
Why it matters: new credit or a missed payment after you lock can change your rate. Hold off on financing furniture or a car until after closing.
Debt-to-income ratio (DTI)
All your monthly debt payments divided by your gross monthly income, meaning income before taxes. Lenders count the new housing payment along with car loans, student loans, card minimums and other debts.
Why it matters: limits differ by loan program and lender, so there’s no single number that applies to everyone. A payment a lender approves can still be more than you want to carry, so set your own comfortable number first.
Loan-to-value ratio (LTV)
The loan amount compared with the home’s value. On a purchase, lenders following Fannie Mae’s rules use the lower of the sale price or the appraised value. Put 10 percent down and your LTV is about 90 percent.
Why it matters: a higher LTV usually means mortgage insurance and can mean a higher rate, so a larger down payment can lower both.
Down payment
The part of the price you pay up front instead of borrowing. Twenty percent down is not a universal requirement, and many loan programs allow less. Assistance programs exist too, and my guide to buying a home in Houston covers where to look.
Underwriting
The lender’s review of your income, assets, debts, credit and the property to decide whether to approve the loan. Approval often comes with conditions, such as an updated bank statement or a letter explaining a deposit.
Ask your lender: “What conditions are still open, and what do you need from me to clear them?”
Appraisal
A written opinion of the home’s value, prepared for the lender by an independent appraiser. You’re entitled to a free copy. The lender generally has to give it to you promptly, and no later than three business days before closing unless you agree to receive it later.
Why it matters: an appraisal isn’t an inspection. It supports the loan, not your judgment about the house’s condition. If it comes in below the price, your purchase contract and any addenda determine your options, so talk with your agent right away.
Loan officer
The person who takes your application and guides you through the loan. Loan officers and mortgage companies must be licensed or registered, and you can look them up for free on NMLS Consumer Access. Their NMLS number is on page 3 of the Loan Estimate.
Your Monthly Payment, Piece by Piece
Principal
The amount you borrowed, and the part of each payment that pays down that balance.
Amortization
Paying off a loan through regular payments over its term. Early in the loan, most of each payment goes to interest. Later, more goes to principal. An amortization schedule shows the split for every payment.
PITI
Principal, interest, taxes and insurance: the main pieces of a typical monthly mortgage payment. Mortgage insurance can be part of it, and HOA dues usually are paid separately.
Why it matters: buyers often compare homes by list price, but PITI is closer to what you’ll actually pay each month. Two homes at the same price can have very different taxes and insurance.
Escrow account
An account your servicer uses to collect part of each monthly payment and pay your property taxes and insurance for you. Many lenders require one. Federal rules require the servicer to review the account every year. A shortage usually raises your payment. A surplus of $50 or more generally comes back to you as a refund.
Why it matters: on a fixed-rate loan, escrow is usually the reason the payment changes. Texas appraises property as of January 1 each year. If a new home was only partly built on that date, the first tax bill can reflect that partial value, and the payment can rise noticeably once the finished house is on the tax roll.
Ask your lender: “What tax figure did you use for my escrow estimate, and is it based on the finished home?”
Property taxes
Taxes charged by each local taxing unit that covers the address, such as the county, city, school district and, in many Houston-area neighborhoods, a municipal utility district (MUD) or other special district. Rates and appraised values are set each year and are subject to change.
Why it matters: taxes depend on the specific address, not the ZIP code or the neighborhood average. Get an estimate that lists every taxing unit for the property. My Fort Bend MUD and property tax explainer shows how to look one up. Once you own and live in the home, apply for the residence homestead exemption with the county appraisal district. The Texas Comptroller’s site explains the rules and deadlines.
Homeowners insurance
Insurance that covers the house and your belongings against losses like fire and wind. Your lender will require it, and the premium is often paid through escrow.
Why it matters: premiums vary a lot from one address to another, so get a quote on the specific house before you set your budget. Texans can compare companies and coverage on HelpInsure, from the Texas Department of Insurance and the Office of Public Insurance Counsel.
Flood insurance
A separate policy that covers flood damage, which most homeowners policies don’t. If a home is in a Special Flood Hazard Area and you have a government-backed mortgage, flood insurance is required. Some lenders require it outside those areas too.
Why it matters: in the Houston area, flood risk is a question to ask about every address, not just those in a mapped flood zone. A new flood policy usually takes 30 days to take effect, but that wait doesn’t apply when you buy the policy in connection with closing on a mortgage.
Mortgage insurance (PMI and MIP)
Insurance that protects the lender, not you, if you stop making payments. Conventional loans usually require it when you put down less than 20 percent, and every FHA loan requires it.
- PMI (private mortgage insurance) applies to conventional loans and is usually paid monthly. You can ask to cancel it once your balance reaches 80 percent of the home’s original value, and it generally ends automatically at 78 percent if you’re current on payments.
- MIP (mortgage insurance premium) applies to FHA loans, with an upfront premium and a monthly premium. Its cancellation rules are different from PMI’s, so ask your lender how they apply to your loan.
- VA and USDA loans handle this differently: VA loans have a funding fee instead of monthly mortgage insurance, and USDA loans have their own upfront and annual fees.
Ask your lender: “What does mortgage insurance cost on this loan, and when and how can it come off?”
HOA dues
Fees paid to a homeowners association for shared amenities and upkeep. They’re usually paid directly to the HOA, not through your mortgage payment.
Why it matters: dues and assessments are specific to each community and can change, so budget for them the same way you budget for taxes. Some master-planned communities around Houston have more than one association or assessment, so ask for all of them.
Under Contract and at Closing
Earnest money
A deposit you make when your offer is accepted to show the seller you’re serious. It’s normally credited toward your cash to close. Your contract sets the amount, who holds it and the deadline to deliver it. In a Texas contract it’s separate from the option fee, which is explained in my guide to buying your first home in Houston and Fort Bend County.
Title insurance
Insurance against problems with the property’s ownership history, such as an old lien or a recording error. A lender’s policy protects the lender and most lenders require it. An owner’s policy protects you.
Why it matters: in Texas, the Texas Department of Insurance sets title insurance premium rates, so the premium for a given policy is the same at every title company. Who pays for the owner’s policy is negotiated in the purchase contract.
After You Close
Servicer
The company that collects your payments, runs your escrow account and answers questions about your loan. It may not be the lender you closed with, and servicing can move to a different company later. Your monthly statement names your current servicer.
Refinance
Replacing your current mortgage with a new one, usually to change the rate, the term or the loan type. A refinance has its own closing costs, and qualifying isn’t guaranteed, so don’t choose a loan today that only works if you can refinance later.
Prepayment penalty
A fee some loans charge if you pay off the loan early, including by selling or refinancing. The Loan Terms section on page 1 of the Loan Estimate shows whether your loan has one.
Common Mortgage Acronyms
| Acronym | Stands for |
|---|---|
| APR | Annual percentage rate |
| ARM | Adjustable-rate mortgage |
| DTI | Debt-to-income ratio |
| FHA | Federal Housing Administration |
| HOA | Homeowners association |
| LTV | Loan-to-value ratio |
| MIP | Mortgage insurance premium (FHA) |
| MUD | Municipal utility district |
| NMLS | The national licensing registry for mortgage companies and loan officers |
| PITI | Principal, interest, taxes and insurance |
| PMI | Private mortgage insurance |
| TRID | TILA-RESPA Integrated Disclosure rule, the federal rule behind the Loan Estimate and Closing Disclosure |
| USDA | U.S. Department of Agriculture |
| VA | U.S. Department of Veterans Affairs |
Questions to Bring to Any Lender
These work whatever loan you’re considering:
- Can you send a Loan Estimate for the same loan amount, type and term as my other quotes?
- What are the points and origination charges in Section A, and what would the loan look like with no points?
- Is my rate locked, until when, and what would an extension cost?
- What will mortgage insurance cost, and how can it come off later?
- What tax and insurance figures did you use for the escrow estimate on this specific address?
- What’s the most the seller or builder can contribute to my closing costs on this loan?
- What conditions still need to be cleared before final approval?
Interview Me to Help You Find Your Next House
A loan is only half the decision. Whether a payment feels comfortable depends on the house: its taxes and taxing districts, the insurance quote for that address, the HOA and what the home will need over time. That’s the part I can help with. Loan terms and qualification questions belong with your lender.
If you’re comparing homes and financing options in Greater Houston or Fort Bend County, interview me for the job of helping you find and buy your next house. We’ll talk through the areas you’re considering, what owning there is likely to cost beyond the mortgage and how I’d represent you from the search through closing. Which lender you choose is always up to you.
If you’re also selling a house, we can talk about how I’d handle that sale.
Zach Emmanouil, Broker Associate at C.R. Realty | ZACH R E GROUP.
Sources
Reviewed September 24, 2026. Definitions on this page are written in plain English from the official sources below. This page is general education and isn’t a loan offer, financial advice or a recommendation of any loan product.
- Consumer Financial Protection Bureau, Mortgage key terms
- Consumer Financial Protection Bureau, Loan Estimate explainer
- Consumer Financial Protection Bureau, What is a Closing Disclosure?
- Consumer Financial Protection Bureau, Interest rate vs. APR
- Consumer Financial Protection Bureau, Discount points and lender credits
- Consumer Financial Protection Bureau, What’s a rate lock?
- Consumer Financial Protection Bureau, When can I remove PMI?
- Consumer Financial Protection Bureau, Regulation X, 12 CFR 1024.17 (escrow accounts)
- Consumer Financial Protection Bureau, Checking a lender’s or loan officer’s license
- Fannie Mae Selling Guide, B2-1.2-01, Loan-to-Value Ratios
- Fannie Mae Selling Guide, B3-4.1-02, Interested Party Contributions
- Fannie Mae Selling Guide, B2-1.4-04, Temporary Interest Rate Buydowns
- Federal Housing Finance Agency, Conforming loan limits
- U.S. Department of Housing and Urban Development, FHA mortgage limits lookup
- U.S. Department of Veterans Affairs, VA-backed purchase loans
- USDA Rural Development, Single Family Housing Guaranteed Loan Program
- FEMA National Flood Insurance Program, FloodSmart: flood insurance eligibility and requirements
- Texas Department of Insurance, Title insurance FAQ
- HelpInsure, Texas Department of Insurance and Office of Public Insurance Counsel
- Texas Comptroller of Public Accounts, Property tax exemptions
- NMLS Consumer Access
- AnnualCreditReport.com