Reference · 230 terms · Updated 2026
California Mortgage Glossary: 230+ Terms Defined
Mortgage documents use over 200 specialized terms that even experienced borrowers find confusing. This glossary defines every important California mortgage term in plain English — from APR (Annual Percentage Rate, which includes loan fees) and DSCR (Debt Service Coverage Ratio, used to qualify investor loans) to Mello-Roos (California special tax districts) and CalHFA Dream For All (the state's shared appreciation down payment program). Bookmark this page and refer to it as you progress through the home loan process.
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This mortgage glossary defines 200+ common California mortgage terms in plain language — from APR to Z-Score. Use the index below to jump to a letter, or use your browser's find (Ctrl/Cmd-F) to search a specific term.
Mortgage Basics
What is Mortgage?
A mortgage is a loan secured by real estate. The borrower agrees to repay the loan over a set term (usually 15 or 30 years) with interest. The property serves as collateral — if the borrower defaults, the lender can foreclose.
What is Principal?
The original loan amount borrowed, or the current balance still owed (not counting interest). On a $600,000 mortgage, the $600,000 is the principal at the start; it decreases with each payment.
What is Interest?
The cost of borrowing, expressed as an annual percentage rate. Calculated monthly on the remaining loan balance.
What is Interest Rate?
The percentage charged for borrowing the loan amount, expressed annually. A 6.5% rate on a $600,000 loan equals roughly $39,000 in interest in year one.
What is APR (Annual Percentage Rate)?
APR is the total yearly cost of borrowing — interest rate plus most lender fees (origination, discount points, mortgage insurance) — expressed as a percentage. APR is almost always higher than the note rate. Federal law (TILA) requires lenders to disclose APR on every mortgage offer.
What is Note Rate?
The interest rate stated on the promissory note. This is what your monthly payment is calculated from, distinct from APR which includes fees.
What is Note?
The legal document where the borrower promises to repay the loan. Also called a promissory note. Separate from the security instrument (deed of trust in California).
What is Mortgage Term?
The length of time you have to repay the loan. Most common in California: 30 years (lowest payment) and 15 years (lowest total interest). 10, 20, and 25-year terms also available.
What is Fixed-Rate Mortgage?
A loan where the interest rate stays the same for the entire loan term. Predictable payments. Most common choice for California buyers.
What is Adjustable Rate Mortgage (ARM)?
A mortgage with an interest rate that changes periodically based on a market index. Common types: 5/1 ARM (fixed 5 years, then adjusts annually), 7/6 ARM (fixed 7 years, then adjusts every 6 months), 10/1 ARM.
What is Hybrid ARM?
An ARM that starts with a fixed-rate period (typically 3, 5, 7, or 10 years) before becoming adjustable. The 5/1 and 7/1 ARMs are hybrid ARMs.
What is Amortization?
The schedule of how a loan's principal and interest are paid down over time. Early payments are mostly interest; later payments are mostly principal.
What is Amortization Schedule?
A table showing every monthly payment over the life of the loan, breaking each into principal and interest portions. Required disclosure on most loan estimates.
What is Loan-to-Value (LTV)?
The loan amount divided by the property's appraised value, expressed as a percentage. Borrow $400,000 on a $500,000 home = 80% LTV. Higher LTV = higher risk = higher rate.
What is Combined Loan-to-Value (CLTV)?
Total of all loans (first mortgage plus HELOC, second mortgage, etc.) divided by appraised value. California HELOCs typically allow up to 85-90% CLTV.
What is Debt-to-Income Ratio (DTI)?
Your total monthly debt payments divided by gross monthly income. Conforming loans cap at 43% DTI; FHA caps at 50%; VA uses residual income tests.
What is Front-End DTI?
Just the housing payment (PITI) divided by gross monthly income. Conservative lenders want this under 28%.
What is Back-End DTI?
Total monthly debt (housing + car + student loans + credit cards) divided by gross monthly income. The primary DTI metric used in underwriting.
What is PITI?
Principal, Interest, Taxes, and Insurance — the four components of a typical mortgage payment. In California, add HOA dues if applicable for total housing cost.
What is Closing?
The final step where ownership transfers and the loan funds. In California, this happens at an escrow company. Buyers and sellers sign separately. Average California close: typically 3-5 weeks from accepted offer.
Loan Programs
What is Conventional Loan?
A mortgage not backed by a government agency (FHA, VA, USDA). Conforming conventional loans meet Fannie Mae and Freddie Mac standards; non-conforming includes jumbo and non-QM.
What is Conforming Loan?
A loan that meets Fannie Mae and Freddie Mac size and underwriting standards. The 2026 conforming loan limit is $832,750 in standard California counties and up to $1,209,750 in high-cost counties like Los Angeles, Orange, San Diego, and the Bay Area.
What is High-Balance Conforming Loan?
A conforming loan in a designated high-cost area between the standard limit ($832,750) and the high-cost ceiling (up to $1,209,750). Available in expensive California counties.
What is Jumbo Loan?
A mortgage above the conforming loan limit. In California, jumbo starts above $832,750 in standard counties or $1,209,750 in high-cost counties. Jumbo loans typically require 10-20% down and stronger credit.
What is Super Jumbo Loan?
Generally refers to loans above $2 million. Often portfolio loans held by the originating bank. Common in Bay Area, Los Angeles, and Orange County coastal markets.
What is FHA Loan?
A Federal Housing Administration-insured mortgage with 3.5% minimum down payment, credit scores from 580 (or 500 with 10% down), and DTI up to 50%. Popular for California first-time buyers. 2026 FHA limit ranges from $498,257 to $1,209,750 depending on county.
What is VA Loan?
A mortgage guaranteed by the Department of Veterans Affairs for eligible veterans, active-duty service members, and surviving spouses. Features: $0 down with full entitlement, no PMI, no maximum loan amount (subject to lender overlays).
What is USDA Loan?
A U.S. Department of Agriculture Rural Development loan with $0 down for properties in USDA-eligible areas (most rural and exurban California). Income limits apply.
What is Conventional 97?
A Fannie Mae/Freddie Mac program offering 97% LTV (3% down) for first-time buyers or buyers who haven't owned in three years. Lower MI cost than FHA in many cases.
What is HomeReady Loan?
Fannie Mae's 3% down conventional program for low- to moderate-income borrowers. Income limit: 80% of area median income.
What is Home Possible Loan?
Freddie Mac's equivalent of HomeReady. 3% down, income-limited, often with reduced PMI cost.
What is HomeStyle Renovation Loan?
Fannie Mae's renovation loan that combines purchase + renovation costs into one mortgage. Useful for fixer-uppers in California.
What is 203(k) Loan?
FHA's renovation loan combining purchase + rehabilitation costs. Two versions: Standard (major rehab) and Limited (up to $35,000).
What is DSCR Loan?
Debt Service Coverage Ratio loan — qualifies on the property's rental income, not personal income. No tax returns required. Popular for California real estate investors. Typical minimums: 1.0 DSCR ratio, 20-25% down, 660+ FICO.
What is Non-QM Loan?
Non-Qualified Mortgage — a loan that doesn't meet the federal QM safe harbor rules. Includes DSCR, bank statement, asset-based, and interest-only loans. Common for self-employed and investor borrowers.
What is Bank Statement Loan?
A non-QM loan that uses 12 or 24 months of business or personal bank statements to verify income instead of tax returns. Popular for California self-employed and 1099 borrowers.
What is Asset-Based Loan?
A non-QM loan that qualifies the borrower based on liquid assets rather than income. Lenders 'amortize' the assets over a typical retirement period to create qualifying income.
What is Asset Depletion?
An underwriting method that converts liquid assets into qualifying income, typically by dividing the total by 60 or 84 months. Used in asset-based loans.
What is Interest-Only Loan?
A mortgage where the borrower pays only interest (not principal) for an initial period (typically 5-10 years), then converts to fully amortizing payments.
What is Reverse Mortgage?
A loan for homeowners 62+ that converts home equity into cash without monthly payments. The loan balance grows over time and is repaid when the home is sold or the borrower passes away. The HECM is the most common type.
What is HECM (Home Equity Conversion Mortgage)?
The FHA-insured reverse mortgage program. Available to homeowners 62+. Limits indexed annually; 2026 maximum claim amount is $1,209,750.
What is HELOC (Home Equity Line of Credit)?
A revolving line of credit secured by your home equity. Variable rate (usually prime + a margin). Typical California HELOCs allow up to 85-90% combined LTV. Interest-only payments during the draw period.
What is HELOAN (Home Equity Loan)?
A fixed-rate second mortgage taken against your home's equity. One-time lump sum, fixed payment, fixed term. Useful when you don't want to disturb a low first-mortgage rate.
What is Second Mortgage?
Any mortgage subordinate to your primary loan. Includes HELOAN, HELOC, and silent seconds like CalHFA MyHome.
What is Bridge Loan?
Short-term financing used to bridge the gap between buying a new home and selling the existing one. Typically 6-12 months. Higher rates than permanent financing.
What is Construction Loan?
Short-term financing for building a new home or major renovation. Usually interest-only during construction, then converts to (or refinances into) a permanent mortgage.
What is Construction-to-Permanent Loan?
A single loan that funds construction and automatically converts to a permanent mortgage when building is complete. One closing, one set of fees.
What is Fix-and-Flip Loan?
Short-term financing for real estate investors purchasing distressed properties to renovate and resell. Higher rates (8-12%+), 6-18 month terms. Save Financial originates these for California investors.
What is ITIN Loan?
A mortgage for borrowers who file taxes with an Individual Taxpayer Identification Number instead of a Social Security Number. Available to many immigrants and ITIN holders in California.
What is Portfolio Loan?
A mortgage that the originating lender keeps on its own books rather than selling to Fannie Mae, Freddie Mac, or another investor. Allows for more flexible underwriting.
What is Foreign National Loan?
A mortgage available to non-US citizens without US credit history. Typically requires 25-40% down, higher rates, and international asset verification.
Down Payments & Costs
What is Down Payment?
The portion of the purchase price the buyer pays upfront. California minimums: 0% (VA, USDA), 3% (Conventional 97), 3.5% (FHA), 10-20% (Jumbo), 20-25% (DSCR investor).
What is Earnest Money Deposit?
A good-faith deposit made when an offer is accepted. In California, typically 1-3% of purchase price, held by the escrow company, credited to the buyer at closing.
What is Closing Costs?
All fees paid at the close of a mortgage transaction — title, escrow, lender, recording, etc. Typically 2-3% of purchase price for California buyers; sellers pay roughly 5-6% (commissions plus their share of escrow).
What is Cash to Close?
The total cash the buyer brings to closing — down payment plus closing costs minus any credits.
What is Seller Credit?
Money the seller agrees to credit the buyer at closing, typically applied to closing costs or rate buydowns. In 2026 California, many closed sales include some form of seller credit.
What is Buy-Down?
Paying upfront points to permanently lower the interest rate, OR a temporary 2/1 buy-down that lowers the rate by 2% in year 1 and 1% in year 2.
What is 2-1 Buydown?
A temporary rate reduction where the rate is 2% lower in year 1, 1% lower in year 2, then returns to the note rate for years 3-30. Usually paid by the seller as part of an offer negotiation.
What is Discount Points?
Upfront fees paid to permanently reduce the interest rate. One point equals 1% of the loan amount and typically lowers the rate by 0.25%. Tax-deductible in the year paid.
What is Origination Fee?
A lender fee for processing the loan. Typically 0.5-1% of the loan amount, though many lenders (including Save Financial) charge a flat fee instead.
What is Underwriting Fee?
A lender fee for the underwriting review. Typically $595-$995.
What is Processing Fee?
A lender fee for the processing work. Typically $595-$795.
What is Application Fee?
A fee charged at application, often refundable or credited toward closing costs.
What is Recording Fee?
Fee paid to the county recorder to record the deed and deed of trust. In California, typically $100-$300.
What is Documentary Transfer Tax?
California state transfer tax of $1.10 per $1,000 of purchase price ($550 on a $500K home). Some cities add their own — Los Angeles charges 0.45% on sales above $5M and 5.5% above $10M under Measure ULA.
What is Private Mortgage Insurance (PMI)?
Monthly insurance that protects the lender if you default on a conventional loan with less than 20% down. Typically 0.3-1.5% of the loan annually. Automatically terminates at 78% LTV.
What is Funding Fee?
VA loan upfront fee (1.25-3.3% of loan) that funds the VA loan program. Can be financed into the loan. Disabled veterans and surviving spouses are exempt.
What is Guarantee Fee?
USDA loan upfront fee (1% of loan) plus annual fee (0.35% of balance). Can be financed.
What is Lender Credit?
Money credited by the lender at closing in exchange for accepting a slightly higher interest rate. Opposite of points.
What is No-Closing-Cost Loan?
A loan where the lender absorbs closing costs by adjusting the rate upward (or charging higher monthly payments). Useful for short-term ownership or refinances.
What is Prepaid Items?
Costs paid at closing that cover periods after closing — typically prepaid interest, first-year insurance premium, and 2-6 months of property tax/insurance escrow reserves.
What is Per Diem Interest?
Interest charged from the closing date to the end of the month, paid at closing.
What is Escrow Reserves?
Money collected at closing to fund the escrow account — typically 2-6 months of property tax and 2 months of insurance.
California-Specific
What is CalHFA?
California Housing Finance Agency — the state agency that runs first-time buyer assistance programs including MyHome, Dream For All, ZIP, and the MCC tax credit.
What is CalHFA MyHome Assistance?
A CalHFA deferred-payment second mortgage providing up to 3% (conventional) or 3.5% (FHA) of the purchase price for down payment or closing cost assistance. No monthly payments until the home is sold, refinanced, or paid off.
What is First-Generation Buyer?
Under CalHFA Dream For All: a buyer whose parents have not owned a home in the United States, or whose parents lost their home to foreclosure or natural disaster more than 7 years ago. Required for Dream For All eligibility.
What is CalHFA ZIP?
Zero Interest Program — a small CalHFA closing cost assistance loan with 0% interest, deferred payments. Often layered with MyHome.
What is MCC (Mortgage Credit Certificate)?
A CalHFA program providing a federal tax credit equal to 20% of mortgage interest paid annually, capped at $2,000/year. Reduces federal income tax dollar-for-dollar.
What is GSFA Platinum?
The Golden State Finance Authority Platinum program — provides a gift-grant of up to 5% of the loan amount for down payment, never repaid. Income limits apply.
What is CalAssist Mortgage Relief?
California's mortgage relief program expanded in February 2026 to provide up to 12 months of mortgage payments (capped at $100,000) to disaster-affected homeowners. Originally launched after the 2025 Los Angeles wildfires.
What is Mello-Roos?
A special tax district created under California's 1982 Community Facilities Act to finance public infrastructure in new developments. Common in Riverside, San Bernardino, Sacramento exurbs, and Inland Empire. Adds 0.5-1.5% to effective property tax.
What is Proposition 13?
The 1978 California constitutional amendment that limits property tax to 1% of assessed value, with annual increases capped at 2%. Resets to current market value when property is sold.
What is Proposition 19?
The 2020 California amendment allowing homeowners 55+, severely disabled, or wildfire victims to transfer their Prop 13 tax basis to a replacement home anywhere in the state, up to 3 times in a lifetime.
What is Supplemental Property Tax?
Additional California property tax billed when a home is sold or new construction completed. Covers the difference between the seller's old tax basis and the new market value, prorated to the date of change.
What is California FAIR Plan?
California's insurer-of-last-resort fire insurance for properties that can't get coverage in the standard market. Enrollment has grown significantly due to wildfire risk. Often required when a property loses standard coverage.
What is Difference in Conditions (DIC) Policy?
Wrap-around insurance policy paired with a FAIR Plan to add liability coverage, theft, water damage, and other perils the FAIR Plan doesn't cover.
What is Wildland-Urban Interface (WUI)?
Areas where homes meet undeveloped wildland — high wildfire risk. California WUI properties face higher insurance costs and stricter building codes (Chapter 7A).
What is California Disclosure Package?
Required state disclosures provided by the seller, including Transfer Disclosure Statement (TDS), Seller Property Questionnaire (SPQ), Natural Hazard Disclosure (NHD), and lead/mold/megan's law notices.
What is Transfer Disclosure Statement (TDS)?
California's required seller disclosure of known property defects and conditions.
What is Natural Hazard Disclosure (NHD)?
California-required disclosure of whether a property is in a flood, fire, earthquake, or seismic hazard zone.
What is ADU (Accessory Dwelling Unit)?
A secondary housing unit on a single-family lot — also called granny flat, in-law unit, or backyard cottage. California state law overrides most local restrictions on ADU construction. Rental income often offsets the $200,000-$450,000 typical California build cost.
What is Junior ADU (JADU)?
An accessory unit of 500 square feet or less, created within the existing footprint of a single-family home. Exempt from school fees in California under SB 543.
What is Concurrent Closing?
A purchase and refinance closing simultaneously. Common in California 1031 exchanges and contingent-sale scenarios.
What is Section 1031 Exchange?
A federal tax-deferred exchange of investment properties. California real estate investors commonly use 1031s to defer capital gains taxes when trading rental properties.
What is Deed of Trust?
California's primary mortgage security instrument (most other states use mortgages). Names three parties: borrower (trustor), lender (beneficiary), and a neutral third-party trustee who can foreclose non-judicially if needed.
What is Non-Judicial Foreclosure?
California's standard foreclosure process, conducted by the deed of trust trustee without court involvement. Typically 4-6 months from notice of default to trustee's sale.
What is Notice of Default (NOD)?
The first formal step in California foreclosure — recorded by the trustee when the borrower is in default. Triggers a 90-day reinstatement period.
What is Power of Sale?
The authority embedded in a California deed of trust allowing the trustee to sell the property at public auction if the borrower defaults.
Credit & Income
What is FICO Score?
Fair Isaac Corporation credit score — the most common credit scoring model used by mortgage lenders. Range 300-850. Mortgage lenders typically use the middle of three scores (Equifax, Experian, TransUnion).
What is Tri-Merge Credit Report?
A combined credit report from all three bureaus (Equifax, Experian, TransUnion) — the standard for mortgage underwriting.
What is Hard Credit Pull?
A formal credit inquiry that affects your FICO score (typically 2-5 points). Done during full mortgage application and approval.
What is Soft Credit Pull?
A credit inquiry that doesn't affect your score. Used for pre-qualification and rate quotes. Many lenders use soft pulls for initial pre-approval.
What is Credit Utilization?
The ratio of credit card balances to total credit limits. Below 30% is good; below 10% is ideal for best mortgage rates.
What is Credit Score Tiers?
Mortgage pricing tiers based on FICO. Best rates: 760+. Good: 740-759. Fair: 700-739. Below 700 means progressively higher rates and stricter terms.
What is Tradeline?
Any account on your credit report — credit card, auto loan, mortgage, student loan. Lenders want to see at least 3 active tradelines for at least 12 months.
What is Authorized User?
Someone added to another person's credit card account. Authorized user tradelines may count toward credit history but lenders increasingly scrutinize them.
What is Manual Underwriting?
Approval by a human underwriter (not automated). Used when borrowers have non-traditional credit or unique situations. FHA, VA, and USDA all allow manual underwriting.
What is Automated Underwriting System (AUS)?
Fannie Mae's Desktop Underwriter (DU), Freddie Mac's Loan Product Advisor (LPA), and others. Most conforming loans go through AUS.
What is Income Verification?
Documenting your income through pay stubs, W-2s, tax returns, or alternative methods (bank statements for self-employed, asset statements for asset-based).
What is Self-Employed Income?
Income from a business you own or 1099 work. Mortgage lenders typically require 2 years of tax returns and average them. Bank statement loans offer alternatives.
What is Schedule C Income?
Sole proprietor business income reported on IRS Schedule C. Lenders use the net profit (after expenses) to qualify.
What is Schedule E Income?
Rental property income reported on IRS Schedule E. Lenders count 75% of gross rents (vacancy/maintenance factor) minus mortgage interest, taxes, insurance.
What is K-1 Income?
Income from a partnership, S-corp, or LLC reported on Schedule K-1. Lenders look for at least 25% ownership and 2-year history. Often complex.
What is RSU Income (Restricted Stock Units)?
Employer-granted shares that vest over time. Mortgage lenders count vested RSUs using a 24-month look-back or 60-month look-forward formula. Critical for Bay Area and Silicon Valley borrowers.
What is Bonus Income?
Most lenders count 2-year average of bonus income if there's a stable history and the bonuses are likely to continue.
What is Commission Income?
Lenders typically need 2 years of commission history and use the average.
What is Overtime Income?
Counted if there's a stable 2-year history and continued likelihood.
What is Reserves?
Liquid assets remaining after closing. Typically required in months of PITI — 2 months for conforming primary residence, 6+ months for investment properties or jumbo.
What is Verification of Employment (VOE)?
Lender confirmation of employment status, income, and likelihood of continued employment. Usually done close to closing.
What is Verification of Deposit (VOD)?
Lender confirmation of bank account balances and asset history.
What is Gift Funds?
Money received from a family member to use as down payment. Must be documented with a gift letter stating it's a gift, not a loan.
What is Gift Letter?
A signed letter from the gift donor stating the funds are a gift with no repayment expectation. Required by all mortgage lenders for any gift used in the transaction.
Property & Appraisal
What is Appraisal?
An independent professional valuation of the property, required by every lender. Cost: $550-$750 for a typical California single-family home; $750-$1,200 for condos or multi-unit.
What is Appraised Value?
The appraiser's opinion of the property's current market value, based on comparable sales (comps). Used to determine LTV.
What is Comparable Sales (Comps)?
Recent sales of similar properties used to support an appraisal. Typically 3-5 sold comps within 90 days and 1 mile of the subject property.
What is Appraisal Contingency?
A purchase contract clause allowing the buyer to back out (or renegotiate) if the appraisal comes in below the purchase price. Standard in California purchase agreements.
What is Appraisal Gap?
The difference between an offer price and the appraised value when the appraisal comes in low. Often filled by extra buyer cash.
What is Subject Property?
The property being purchased or refinanced — the property securing the loan.
What is Hazard Insurance?
Homeowners insurance covering fire, wind, theft, and liability. Required by lenders. California average: $1,200-$3,000/year; higher in wildfire zones.
What is Flood Insurance?
Separate insurance for flood damage, required by lenders for properties in FEMA-designated flood zones (Special Flood Hazard Area).
What is Earthquake Insurance?
Optional separate coverage for earthquake damage. Most California homeowners policies exclude earthquakes. CEA (California Earthquake Authority) is the main provider.
What is Title Insurance?
Insurance protecting against title defects. California has two types: Owner's (protects the buyer) and Lender's (protects the lender). Lender's is required.
What is Owner's Title Insurance?
Optional policy protecting the buyer against future title claims. Typically 0.5% of purchase price. In Southern California, often paid by the seller; in Northern California, often paid by the buyer (per local custom).
What is Lender's Title Insurance?
Required policy protecting the lender's interest in the property. Cost: roughly 0.5% of the loan amount. Always paid by the buyer/borrower.
What is Preliminary Title Report?
A title company's initial report on the property's title status, identifying any liens, easements, or other issues that need to be resolved before closing. Standard California escrow practice.
What is Chain of Title?
The history of recorded ownership changes on a property. A clean chain is required for title insurance.
What is Lien?
A legal claim against a property for unpaid debts. Mortgages, tax liens, mechanic's liens, and judgment liens are all liens. Liens must be cleared before sale.
What is Encumbrance?
Any claim, lien, or restriction on a property — includes liens, easements, restrictive covenants, leases.
What is Easement?
A right for another party to use part of a property for a specific purpose (utility access, driveway sharing, etc.). Discovered in preliminary title report.
What is Survey?
A professional measurement of property boundaries. Required by some lenders, especially for unique properties or boundary disputes.
What is Plat Map?
A recorded map showing lot boundaries, easements, and survey points within a subdivision.
What is CC&Rs (Covenants, Conditions & Restrictions)?
Rules governing what owners can do with property in a planned development or HOA. Reviewed during escrow. Common in California condos and master-planned communities.
What is HOA (Homeowners Association)?
An organization that maintains common areas and enforces CC&Rs in planned developments and condos. Monthly dues range from $50-$1,200+ in California.
What is HOA Transfer Fee?
Fee charged by the HOA when ownership changes. Typically $300-$500 in California.
Process & Documents
What is Pre-Qualification?
An informal estimate of how much you might borrow, based on self-reported information. Less reliable than pre-approval; rarely accepted by sellers.
What is Pre-Approval?
A formal lender review of your credit, income, and assets — usually with credit pull and documentation. Results in a pre-approval letter that sellers take seriously. Save Financial typically issues pre-approvals within one business day, depending on documentation.
What is Underwritten Pre-Approval?
The strongest pre-approval — fully reviewed by an underwriter, conditional only on the property/appraisal. Some California listing agents now require these in competitive markets.
What is Loan Estimate (LE)?
A standardized 3-page disclosure that lenders must provide within 3 business days of application. Shows rate, payment, fees, and cash to close. Used to compare lenders.
What is Closing Disclosure (CD)?
A standardized 5-page disclosure that lenders must provide 3 business days before closing. Shows final loan terms and fees. Compare against the Loan Estimate.
What is Rate Lock?
A lender's commitment to honor a specific interest rate for a set period (typically 15, 30, 45, or 60 days). Protects the borrower from rate increases during processing.
What is Float?
Choosing NOT to lock the rate, hoping rates will go down before closing. Risky in a rising-rate environment.
What is Float-Down?
A lock feature allowing the borrower to re-lock at a lower rate (typically once) if rates drop materially before closing. Sometimes free, sometimes a fee.
What is Extension Fee?
Fee charged to extend a rate lock past its original expiration. Typically 0.125% to 0.25% of the loan amount.
What is Commitment Letter?
A formal letter from the lender committing to the loan, subject to listed conditions. Stronger than a pre-approval letter.
What is Conditional Approval?
Approval contingent on satisfying specific conditions (updated pay stubs, appraisal, title clearance, etc.).
What is Clear to Close (CTC)?
The final lender approval — all conditions met, ready to fund. The last step before closing.
What is TRID?
TILA-RESPA Integrated Disclosure rule — the federal regulation requiring the Loan Estimate and Closing Disclosure formats. Effective October 2015.
What is RESPA (Real Estate Settlement Procedures Act)?
Federal law governing mortgage settlement disclosures and prohibiting kickbacks between settlement service providers.
What is TILA (Truth in Lending Act)?
Federal law requiring lenders to disclose APR, total finance charges, and other loan terms in a standardized way.
What is HMDA (Home Mortgage Disclosure Act)?
Federal law requiring lenders to report loan application and origination data, including borrower demographics. Data is publicly available.
What is Right of Rescission?
On refinances of a primary residence, the borrower has 3 business days after closing to cancel the loan. Does NOT apply to purchase loans.
What is Escrow (Closing)?
A neutral third party that holds funds and documents during a California home purchase. The escrow company coordinates between buyer, seller, lenders, and title company.
What is Escrow Account (Impound Account)?
A lender-held account that collects 1/12 of annual property taxes and insurance with each monthly mortgage payment, then pays those bills when due. Required on most loans with less than 20% down.
What is Escrow Waiver?
An option to waive the impound account, requiring the borrower to pay property tax and insurance directly. Typically available with 20%+ down and good credit; sometimes costs 0.125-0.25% in pricing.
What is Closing Date?
The date the loan funds and the property officially transfers. Can be different from the recording date.
What is Recording Date?
The date the deed and deed of trust are recorded with the county recorder. In California, ownership officially transfers when recorded.
What is Possession Date?
The date the buyer takes physical possession (keys). Sometimes same as closing, sometimes delayed by negotiated rent-back agreements.
What is Rent-Back?
An agreement allowing the seller to remain in the home for a period after closing, paying the buyer rent. Common in California's competitive markets.
Refinance & Investment
What is Refinance?
Replacing your existing mortgage with a new one, typically to lower the rate, change the term, switch from ARM to fixed, or extract cash (cash-out refinance).
What is Rate-and-Term Refinance?
A refinance that changes only the interest rate and/or loan term, without taking cash out. Lower closing costs and easier underwriting than cash-out.
What is Cash-Out Refinance?
A refinance for more than the existing loan balance, with the difference paid to the borrower in cash. California limits typically 80% LTV on primary residence, 75% on second homes, 70% on investment properties.
What is Streamline Refinance?
A simplified refinance for existing government loans. FHA Streamline (existing FHA), VA IRRRL (existing VA), and USDA Streamline (existing USDA). Usually no appraisal or income verification.
What is VA IRRRL?
VA Interest Rate Reduction Refinance Loan — a streamlined refinance for veterans with existing VA loans. No appraisal, no income verification, must result in lower rate or change ARM to fixed.
What is FHA Streamline Refinance?
A simplified refinance for existing FHA loans. No appraisal, no income verification (in most cases), must result in lower payment.
What is Break-Even Point?
The number of months it takes for refinance savings to cover closing costs. Calculation: closing costs ÷ monthly savings. If you'll be in the home longer than the break-even, refinance is worth it.
What is No-Cost Refinance?
A refinance where the lender absorbs closing costs in exchange for a higher rate. Useful for short-term ownership.
What is Investment Property?
Real estate purchased for income or appreciation, not as a primary residence. Higher rates, larger down payments (typically 20-25%), stricter underwriting.
What is Primary Residence?
The home where you live most of the year. Best rates and lowest down payment requirements.
What is Second Home?
A non-primary residence used by the owner for personal enjoyment (vacation home, etc.). Rates between primary and investment. Cannot be rented as a primary income source.
What is Owner-Occupancy Requirement?
Most mortgage programs require you to occupy the property as your primary residence for at least 12 months. Violating this is occupancy fraud.
What is Buy-and-Hold Strategy?
Real estate investment strategy: buy properties to hold long-term for rental income and appreciation.
What is BRRRR Strategy?
Buy, Rehab, Rent, Refinance, Repeat — a common investor playbook. Each refinance pulls equity for the next acquisition.
What is Cap Rate (Capitalization Rate)?
Annual net operating income divided by property value. Used by investors to compare rental property returns. California cap rates are typically 3-6%.
What is Cash-on-Cash Return?
Annual cash flow divided by total cash invested. Different from cap rate because it considers financing.
What is Net Operating Income (NOI)?
Gross rental income minus operating expenses (not including mortgage). Used in commercial and DSCR underwriting.
What is Gross Rent Multiplier (GRM)?
Property price divided by gross annual rent. A quick way to compare investment properties.
What is Vacancy Rate?
The percentage of time a rental unit sits empty. Lenders typically assume 25% vacancy/maintenance factor when counting Schedule E income.
What is Section 8 Rental?
A property leased to a Section 8 voucher holder. Rent is paid partially by the tenant and partially by the local public housing authority. Acceptable income source for DSCR loans.
What is Short-Term Rental?
A property rented for periods less than 30 days (Airbnb, VRBO). Subject to local regulations; impacts insurance and lending. Major DSCR loan use case in California beach, ski, and wine country markets.
Regulatory & Legal
What is NMLS (Nationwide Multistate Licensing System)?
The federal registry of licensed mortgage loan originators (MLOs) and mortgage companies. Every legitimate California loan officer has an NMLS number. Verify at nmlsconsumeraccess.org.
What is MLO (Mortgage Loan Originator)?
A licensed individual who originates mortgage loans. Must hold an NMLS license; in California, must also be licensed by the DRE or DFPI.
What is California DRE (Department of Real Estate)?
The California state agency that licenses real estate brokers and mortgage brokers operating under a real estate license. Issues DRE numbers.
What is California DFPI (Department of Financial Protection and Innovation)?
The California state agency that licenses mortgage lenders, banks, and other financial service providers operating under finance lender licenses. Issues DFPI license numbers.
What is California Residential Mortgage Lending Act (CRMLA)?
California law governing mortgage lenders licensed by DFPI.
What is CFPB (Consumer Financial Protection Bureau)?
The federal agency overseeing consumer financial products, including mortgages. Enforces TILA, RESPA, and other consumer protection laws.
What is Equal Credit Opportunity Act (ECOA)?
Federal law prohibiting credit discrimination based on race, color, religion, national origin, sex, marital status, age, or receipt of public assistance.
What is Fair Housing Act?
Federal law prohibiting discrimination in housing transactions, including mortgage lending. Protected classes: race, color, religion, sex, national origin, familial status, and disability.
What is Ability-to-Repay Rule (ATR)?
Federal requirement that lenders verify a borrower can repay the loan. The QM rule provides a safe harbor for compliance.
What is Qualified Mortgage (QM)?
A mortgage meeting CFPB requirements for borrower ability-to-repay. QM loans have certain protections for lenders. Common requirements: 43% DTI cap, no balloon payments, no negative amortization, points and fees under 3% of loan.
What is Safe Harbor QM?
A subset of QM loans with the strongest legal protections for lenders. Typically requires 43% DTI or AUS approval.
What is Section 32 (HOEPA) Loan?
A high-cost mortgage subject to additional consumer protections under the Home Ownership and Equity Protection Act. Triggered by high APR or fees.
What is Higher-Priced Mortgage Loan (HPML)?
A loan with APR exceeding the average prime offer rate by certain thresholds. Subject to additional protections including escrow requirements.
What is Predatory Lending?
Abusive practices that strip equity, trap borrowers in unaffordable loans, or include hidden fees. Targeted by California and federal consumer protection laws.
What is Steering?
Directing borrowers toward higher-cost loans for the lender's benefit. Prohibited under federal LO compensation rules.
What is LO Compensation Rule?
Federal rule prohibiting loan originator compensation based on loan terms (other than loan amount). Designed to prevent steering.
Less Common but Important
What is Bi-Weekly Mortgage?
Paying half your monthly mortgage every 2 weeks results in 13 monthly payments per year, paying down principal faster. Saves roughly 4-7 years on a 30-year loan.
What is Acceleration Clause?
A mortgage clause allowing the lender to demand immediate repayment of the entire balance if the borrower defaults.
What is Due-on-Sale Clause?
A mortgage clause requiring full repayment when the property is sold. Standard in California deeds of trust; prevents loan assumption without lender approval.
What is Assumable Mortgage?
A mortgage that a new buyer can take over from the seller. VA and FHA loans are assumable with lender approval. Conventional loans typically are not.
What is Wraparound Mortgage?
Seller financing structured around an existing mortgage. The buyer pays the seller, who continues paying the underlying mortgage.
What is Land Contract?
An owner-financed purchase where the seller keeps title until the buyer pays in full. Allowed in California but uncommon for residential.
What is Balloon Payment?
A large lump sum due at the end of a loan term. Common in commercial and some non-QM loans; restricted in QM.
What is Negative Amortization?
When the monthly payment doesn't cover the interest, causing the loan balance to grow. Prohibited in QM loans.
What is Recast?
Re-amortizing a loan after making a large principal payment. Lowers future payments without refinancing. Available on most conventional loans for a small fee.
What is Forbearance?
A temporary pause or reduction in mortgage payments, typically during hardship. Doesn't forgive the debt — missed amounts are added back. Used widely during COVID-19.
What is Loan Modification?
A permanent change to the loan terms (rate, term, principal) to make payments affordable. Used when borrowers can't sustain regular payments.
What is Short Sale?
Selling a property for less than the mortgage balance, with lender approval. The lender agrees to release the lien even though the borrower can't pay in full.
What is Deed in Lieu of Foreclosure?
A voluntary transfer of property to the lender in lieu of foreclosure. Less damaging to credit than foreclosure.
What is Loan Servicer?
The company that collects mortgage payments, manages escrow, and handles customer service. Different from the lender — your loan can be sold to a new servicer.
What is Loan Originator?
The party who originally created the loan (e.g., Save Financial). Different from the holder (current owner) and servicer.
What is Investor?
The entity that holds your loan — Fannie Mae, Freddie Mac, Ginnie Mae (FHA/VA pools), or a private investor.
What is Mortgage-Backed Security (MBS)?
A bond backed by a pool of mortgages. Mortgage rates correlate with MBS prices/yields rather than directly with the Fed rate.
What is 10-Year Treasury Yield?
The interest rate on US 10-year government bonds — the closest proxy for 30-year mortgage rates. Mortgage rates typically run 1.8-2.5% above the 10-year Treasury yield.
What is Lock Date?
The date a borrower locks the interest rate. Sets the clock on the lock period.
What is Funding Date?
The date the lender wires loan funds to escrow. In California, usually a day or two after document signing.
What is Wet Funding?
Loan funds disbursed at signing. Standard in California.
What is Dry Funding?
Loan funds disbursed after document review. Used in some states (Washington, Oregon, Idaho) but not California.
Don't see a term? Call 888-703-1840 and a licensed Save Financial loan officer will explain any mortgage term in plain English. We are a California-licensed mortgage lender (NMLS #377740, DRE #01875766) serving all 58 California counties.