Key Mortgage Terms You Must Know Before You Buy or Refi

Mortgage lenders speak their own language — and if you don't know the vocabulary, you can miss details that cost you real money. This glossary covers the terms that actually come up in a California loan, explained the way a straight-talking broker would explain them.

What Does LTV Mean — and Why Does It Drive Everything?

LTV (Loan-to-Value ratio) is the size of your loan expressed as a percentage of the home's appraised value. Borrow $480,000 on a $600,000 home and your LTV is 80%.

LTV is one of the first numbers a lender runs. A lower LTV means less risk for the lender, which generally translates into better terms for you. A higher LTV often triggers mortgage insurance requirements. Jumbo loans in Los Angeles County typically require a lower LTV than standard conforming loans — worth knowing before you size your down payment.

What Is DTI — and What's a Realistic Ceiling?

DTI (Debt-to-Income ratio) compares your monthly debt obligations to your gross monthly income. Lenders look at two versions: front-end DTI (housing payment only) and back-end DTI (housing plus all other monthly debts).

In practice, back-end DTI is the number that moves the needle. Conventional loans generally want to see it well under 50%; FHA allows more flexibility in some cases. If you're self-employed, how your income gets calculated for DTI purposes is its own subject — getting a mortgage when you're self-employed in California covers the details.

Fixed-Rate vs. Adjustable-Rate: Which Loan Structure Is It?

A fixed-rate mortgage locks your interest rate for the life of the loan. Principal and interest never change, which makes long-term budgeting predictable.

An adjustable-rate mortgage (ARM) opens with a fixed period — often 5, 7, or 10 years — then adjusts periodically against a benchmark index. ARMs can work well for borrowers who plan to sell or refinance before the first adjustment. If you're weighing the long-term math, the 30-year vs. 15-year comparison belongs in the same conversation.

What Is APR, and Why Is It Different from the Interest Rate?

Your interest rate is the base cost of borrowing. The APR (Annual Percentage Rate) adds most lender fees — origination charges, points, certain closing costs — to express the truer annualized cost of the loan.

Two loans can carry the same interest rate and meaningfully different APRs depending on fee structures. When you're comparing lenders, APR on similar loan types is a more apples-to-apples measure than rate alone. The full fee picture is covered in what closing costs look like on a California mortgage.

What Is PMI — and When Does It Go Away?

PMI (Private Mortgage Insurance) is a monthly premium that protects the lender if you default. It's typically required on conventional loans where your down payment puts your LTV above 80%.

For FHA loans, the equivalent is MIP (Mortgage Insurance Premium), which works differently and doesn't automatically cancel the same way PMI does. That distinction matters when you're weighing conventional vs. FHA loan options. On conventional loans, PMI generally drops off once you've built sufficient equity in the home.

Conforming vs. Non-Conforming vs. Jumbo — What's the Difference?

A conforming loan fits within the loan limits set annually by the FHFA and can be sold to Fannie Mae or Freddie Mac. In high-cost counties like Los Angeles, those limits are set above the national baseline — meaning many California buyers can stay conforming even at prices that would push into jumbo territory elsewhere.

A non-conforming loan doesn't meet those guidelines: either the amount exceeds the limit (jumbo) or the structure falls outside agency rules. Non-QM (Non-Qualified Mortgage) is a specific category of non-conforming loans designed for borrowers who can't document income through traditional W-2s. What is a non-QM loan — and when does it make sense? walks through who these are built for and when they're worth considering.

What Happens During Underwriting?

Underwriting is where the lender verifies everything: income, assets, credit, employment, and the property's value via appraisal. The underwriter issues conditions — items you need to provide before the loan clears to close.

Conditions fall into two buckets: prior-to-approval (PTA) and prior-to-close (PTC). One hard rule while you're in underwriting: don't open new credit lines, change jobs, or make large unexplained deposits. Any of those can trigger a re-review and stall your closing date.

What Is a Rate Lock — and What Happens If It Expires?

A rate lock holds your interest rate for a defined window — commonly 30, 45, or 60 days — while your loan moves through underwriting to closing. If rates move up during that window, your locked rate stands.

The risk is the other direction: if your closing slips past the lock expiration, you may need to extend (usually at a cost) or float to the current market. How mortgage rate locks work covers the mechanics, including extension options and what to watch for.

Loan Estimate vs. Closing Disclosure: What's the Difference?

The Loan Estimate (LE) is a standardized three-page form lenders are required to provide within three business days of your application. It shows your projected rate structure, payment breakdown, and estimated closing costs.

The Closing Disclosure (CD) arrives at least three business days before closing and reflects the final, locked figures. Some fees are allowed to change from LE to CD; others are tightly capped. What is a loan estimate and closing disclosure explains which numbers can move and what to flag if they do.

What Is PITI?

PITI stands for Principal, Interest, Taxes, and Insurance — the four components that make up a full housing payment. When a lender quotes a monthly payment, clarify whether they mean P&I only (the debt service) or the full PITI figure including property taxes and homeowner's insurance.

Lenders use PITI for the front-end DTI calculation, and it's the actual number that comes out of your account each month when you're escrowing for taxes and insurance.

What Is DSCR — and Does It Apply to My Situation?

DSCR (Debt Service Coverage Ratio) measures whether a rental property generates enough income to cover its mortgage payment. A DSCR loan qualifies based on the property's cash flow rather than the borrower's personal income documents — which makes it a strong fit for real estate investors who hold multiple properties or run their own business.

If you're financing investment property in California, DSCR loans are worth understanding before you assume a conventional loan is your only path.