Mortgage & real estate
glossary.

A secondary housing unit on the same property as a primary residence — garage conversion, basement apartment, backyard cottage, or above-garage unit. A common house hacking strategy that can generate $800–2,000/month in rental income.

A mortgage with an interest rate that changes periodically after an initial fixed period. A 5/1 ARM is fixed for 5 years then adjusts annually. Riskier than a fixed-rate mortgage if rates rise.

The process of paying off a loan through regular scheduled payments. Early payments go mostly to interest; later payments go mostly to principal. An amortization schedule shows the exact breakdown for every payment over the life of the loan.

The true annual cost of borrowing, expressed as a percentage. Includes the interest rate plus lender fees (origination, points, etc.). APR is always higher than the stated interest rate and is the best apples-to-apples comparison between lenders.

An independent assessment of a home's market value conducted by a licensed appraiser. Lenders require an appraisal to confirm the property is worth the loan amount before funding.

Total monthly debt payments — including the new mortgage payment — divided by gross monthly income. Most lenders require back-end DTI to stay under 43%. If your existing debts are high, this limit reduces how much mortgage you can take on.

In refinancing: the number of months needed for monthly savings to exceed closing costs. If refinancing saves $200/month and costs $4,000, the break-even is 20 months. Only refinance if you plan to stay past break-even.

Buy, Rehab, Rent, Refinance, Repeat. An investor strategy where you purchase a distressed property below market value, renovate it, rent it out, then cash-out refinance to pull equity out and use it to buy the next property.

When one co-owner pays the other(s) for their ownership share in a property. The buying-out party typically refinances the mortgage in their name alone and pays the departing owner their equity share in cash.

Annual net rental income divided by total cash invested (down payment + closing costs), expressed as a percentage. Example: $6,000 net annual rental income on a $50,000 investment = 12% cash-on-cash return. Real estate investors typically target 8–12%.

Replacing your existing mortgage with a new, larger loan and receiving the difference as cash. Used to access built-up home equity for renovations, debt payoff, or investment. Your monthly payment typically increases.

Fees paid at closing, typically 2–5% of the loan amount. Includes origination fees, title insurance, appraisal, attorney fees, recording fees, and prepaid items like homeowners insurance and property tax escrow.

A person who applies for a mortgage jointly with another applicant. Both borrowers' incomes, debts, and credit scores are evaluated for qualification, and both are equally and fully responsible for repayment regardless of any private agreement.

A written legal contract between unmarried partners who live together, outlining property rights, financial responsibilities, and what happens to jointly owned assets if the relationship ends. Strongly recommended before buying a home together.

A form of marital property ownership where spouses automatically and equally own all assets acquired during marriage. Available in 9 states: AZ, CA, ID, LA, NV, NM, TX, WA, and WI. Not available to unmarried couples.

A mortgage not backed by a federal agency (unlike FHA, VA, or USDA loans). Typically requires a 620+ credit score and 5–20% down. Conforming conventional loans follow Fannie Mae/Freddie Mac guidelines.

A legal document between co-buyers specifying each party's ownership percentage, how costs are split, how decisions are made, what happens if one owner wants to sell, and buyout procedures. Essential for any co-purchase between non-spouses.

A numerical rating (300–850) of a borrower's creditworthiness based on payment history, debt levels, credit age, and other factors. Lenders typically use the middle score of three major bureaus (Equifax, Experian, TransUnion). Higher scores qualify for lower rates.

Monthly debt payments divided by gross monthly income. The primary metric lenders use to determine affordability. Front-end DTI covers housing costs only (≤28% guideline). Back-end DTI includes all debts (≤43% guideline).

A legal document that transfers ownership of real property from seller to buyer. The deed is recorded with the local government and establishes who legally owns the property.

The portion of the purchase price paid upfront by the buyer. The remainder is financed via mortgage. A down payment of 20%+ on a conventional loan eliminates PMI. FHA allows 3.5% down with a 580+ credit score.

A residential building with two separate housing units under one roof. A popular house hacking vehicle — live in one unit and rent the other. FHA loans allow 3.5% down on 2–4 unit properties if you occupy one unit as a primary residence.

The difference between a home's current market value and the remaining mortgage balance. Equity = Home Value − Loan Balance. It grows as you pay down the principal and as the property appreciates in value.

A neutral third-party account that holds funds. In real estate transactions, escrow holds the buyer's deposit until closing. On an ongoing basis, most mortgages include an escrow account that collects and pays property taxes and homeowners insurance.

A mortgage insured by the Federal Housing Administration. Requires as little as 3.5% down with a 580+ credit score (10% down for scores 500–579). Allows rental income from 2–4 unit properties to count toward qualification if you occupy one unit.

A mortgage with an interest rate that remains constant for the entire loan term. The most predictable and popular mortgage type. Common terms: 30, 20, and 15 years. A 15-year loan builds equity faster but has a higher monthly payment.

Monthly housing costs (principal + interest + taxes + insurance + PMI) divided by gross monthly income. Standard lender guideline: housing costs should not exceed 28% of gross monthly income.

Homeowners Association — an organization that governs a planned community, condominium, or subdivision. HOA fees cover shared amenities and maintenance (pool, landscaping, exterior). Monthly HOA fees increase your total housing cost and must be included in DTI calculations.

Buying a property, living in part of it, and renting out the rest to offset your mortgage payment. Strategies range from renting a spare room ($500–1,500/mo) to buying a duplex and renting the other unit ($1,500–4,000/mo). Done well, you can live nearly free while building equity.

The percentage of the loan amount charged annually by the lender for borrowing money. Different from APR, which includes lender fees. The rate directly determines your principal and interest payment.

A form of co-ownership where all owners hold equal shares with right of survivorship — when one owner dies, their share automatically passes to the surviving co-owner(s). Requires equal ownership percentages. Simpler than tenants in common but less flexible for unmarried co-buyers.

The loan amount divided by the home's appraised value, expressed as a percentage. LTV of 80% = 20% down payment. Lenders use LTV to assess risk. LTV above 80% typically triggers PMI on conventional loans.

The time frame during which a lender guarantees your interest rate won't change while your loan is being processed. Typically 30–60 days. If rates rise during this period, your locked rate is protected. If rates fall, you may lose the lower rate.

The FHA equivalent of PMI. MIP includes an upfront premium (1.75% of loan amount, added to the loan) and an annual premium (0.45–1.05%). Unlike PMI on conventional loans, MIP on FHA loans often lasts the life of the loan.

A fee charged by the lender to process and create your mortgage, typically 0.5–1% of the loan amount. Part of your closing costs. Some lenders offer 'no origination fee' loans, but often at a slightly higher rate.

Principal and Interest — the two core components of a mortgage payment. Principal reduces your loan balance. Interest is the lender's fee for lending the money. Early in the loan, most of each payment is interest; over time, more goes to principal.

Principal, Interest, Taxes, and Insurance — the four components that make up a complete monthly mortgage payment. MorgCalc calculates full PITI using actual state property tax rates.

Private Mortgage Insurance — required on conventional loans when the down payment is less than 20%. Protects the lender (not you) if you default. Typically costs 0.5–1.5% of the loan amount annually, added to your monthly payment. Removed automatically when LTV reaches 78%.

Fees paid upfront to the lender to buy down the interest rate. One point = 1% of the loan amount. Buying points lowers your rate and monthly payment but increases closing costs. The math favors buying points only if you plan to stay in the home long-term.

A lender's written commitment to loan a specific amount based on verified income, credit, and assets. Required by most sellers before accepting an offer. Stronger than pre-qualification because the lender has actually verified your information.

An informal estimate of how much you may be able to borrow, based on self-reported information (not verified). Useful for getting a ballpark early in your search, but carries little weight with sellers. Follow up with a full pre-approval.

The original amount borrowed on a mortgage, separate from interest. When you make a payment, part goes to reducing the principal balance and part goes to interest. The principal balance is what you still owe.

Annual tax levied by local governments based on the assessed value of your property. Rates vary widely by state and county — from under 0.3% in Hawaii to over 2.4% in New Jersey. MorgCalc uses real state-level average tax rates for all 50 states.

Replacing your mortgage to get a lower interest rate or change the loan term — without taking cash out. The goal is to reduce your monthly payment or pay off the loan faster. Most common type of refinance.

A provision in a co-ownership agreement giving one co-owner the opportunity to buy the other's share before it can be offered to an outside buyer. Protects co-owners from having an unknown third party become a co-owner.

A rental for periods shorter than 30 days, typically listed on Airbnb or VRBO. Can generate significantly higher income per night than long-term rentals but is subject to local regulations that vary widely by city and are becoming more restrictive in many markets.

A form of co-ownership where each owner holds a distinct, separately transferable share — which can be unequal (e.g., 60/40). Each owner can sell or will their share to anyone without the other's consent. The most common and flexible ownership structure for unmarried co-buyers.

Legal documentation establishing who owns a property and confirming there are no outstanding liens or claims against it. When you buy a home, the title transfers to you. A title search is performed before closing to confirm clean ownership.

Insurance that protects against claims on a property's ownership after closing — such as unknown liens, fraud, forged documents, or errors in public records. Lenders always require a lender's title policy. Buyers can also purchase an owner's title policy for their own protection.

The process by which a lender evaluates a loan application to assess risk. Involves verifying income, employment history, credit, assets, and the property appraisal. Underwriting is the final step before loan approval.

A mortgage benefit available to eligible veterans, active-duty service members, and surviving spouses. No down payment required, no PMI, competitive interest rates, and no maximum loan amount (though lenders may set limits). One of the strongest mortgage products available.

The percentage of time a rental unit is expected to sit empty between tenants, used for investment budgeting. Industry standard is 8–10% (roughly one month per year). MorgCalc's house hacking calculator defaults to 8%.