Mortgage glossary, A to Z
Short, plain-language definitions of 75 terms used on this site. Each entry links to the page with the full rules and figures, and cites the official source it comes from.
75 terms
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A
Adjustable-rate mortgage (ARM)
A loan whose rate is fixed for a starting period and then can change at set intervals, following an index plus a margin, within the limits set by its caps. In a name like 5/6m, the first number is how long the starting rate lasts and the second is how often it can change after that.
More: ARMs: the worst case under the caps · ARM worst-case calculator
Source: CFPB: “Adjustable-Rate Mortgages” booklet (Consumer Handbook on Adjustable-Rate Mortgages, last updated September 2026); CFPB: “What are rate caps with an adjustable-rate mortgage (ARM), and how do they work?” (Ask CFPB #1951, last reviewed Jan 14, 2025) · checked Nov 10, 2026Adjusted gross income (AGI)
Your total income from all sources minus certain adjustments, shown on line 11 of Form 1040. It’s a tax figure; a self-employed borrower’s qualifying income is worked out separately from the tax returns.
More: Self-employed income: gross, AGI, and qualifying income
Source: IRS: “Definition of adjusted gross income” (page last reviewed or updated Nov 5, 2026) · checked Nov 10, 2026Adjusted Value (FHA)
FHA’s value for figuring loan-to-value: the lesser of the purchase price minus any inducements to purchase, or the appraised value.
More: Loan-to-value, step by step
Source: HUD Handbook 4000.1, II.A.2 (Adjusted Value) · checked Nov 10, 2026Amortization
Paying off a loan with equal monthly payments that cover the interest due plus part of the balance, so the balance reaches zero at the end of the term. Early payments are mostly interest, because interest is charged on a larger balance.
More: Why early payments are mostly interest · Amortization calculator
Annual percentage rate (APR)
A yearly rate that expresses the cost of the loan, including certain finance charges, and appears on the Loan Estimate and the Closing Disclosure. If the disclosed rate becomes inaccurate before closing (by more than 1/8 of a percentage point for a regular transaction), a new 3-business-day review period starts.
More: The three changes that restart the wait
Source: 12 CFR 1026.38 (Regulation Z: Closing Disclosure content); 12 CFR 1026.22(a)(2)–(4) (Regulation Z: when a disclosed annual percentage rate is accurate); 12 CFR 1026.19(f)(1)–(2) (Regulation Z: Closing Disclosure timing, receipt, waiver, and corrected disclosures) · checked Nov 10, 2026Appraisal
An appraiser’s estimate of the home’s value, prepared for the lender. For a purchase, lenders generally use the lower of the price and the appraised value for loan-to-value, and you have a right to a copy at no charge.
More: How lenders use the sale price and the appraised value
Source: Fannie Mae Selling Guide B2-1.2-01, Loan-to-Value (LTV) Ratios; 12 CFR 1002.14(a) (Regulation B: providing appraisals and other valuations) · checked Nov 10, 2026Assessed value (tax value)
The value a local appraisal district or tax assessor sets for property tax under state law. It can differ from both the sale price and the appraised value, and states use their own terms for it, such as Texas’s market, appraised, and assessed value.
More: The three values at a glance
Source: Texas Tax Code §1.04(7)–(9) (definitions: market value, appraised value, assessed value) · checked Nov 10, 2026Automated underwriting system (AUS)
Software that reviews a loan file and returns a recommendation and a list of what must be documented. Fannie Mae’s is Desktop Underwriter (DU), Freddie Mac’s is Loan Product Advisor (LPA), FHA uses TOTAL Mortgage Scorecard, and USDA uses the Guaranteed Underwriting System (GUS).
More: Automated underwriting findings
Source: Fannie Mae Selling Guide B3-2-01, General Information on DU (04/01/2026) · checked Nov 10, 2026; HUD Handbook 4000.1, II.A.4 (TOTAL Mortgage Scorecard) · checked Nov 9, 2026; USDA Handbook HB-1-3555, Chapter 10 (rev 08-05-25), paragraph 10.2 and Attachment 10-A (credit report age, inquiries, undisclosed debts, rent history) · checked Nov 10, 2026B
Back-end DTI
The housing payment plus other monthly debts, divided by gross monthly income. Each program publishes its own guideline figures for it.
More: Debt-to-income, step by step · DTI calculator
Source: Fannie Mae Selling Guide B3-6-02, Debt-to-Income Ratios (04/02/2025) · checked Nov 10, 2026Break-even (points)
The number of months it takes for a lower monthly payment to earn back the cost of discount points: the cost of the points divided by the monthly savings.
Business day (Closing Disclosure)
For Closing Disclosure timing, every day except Sundays and federal legal public holidays.
More: The 3-business-day rule
Source: 12 CFR 1026.2(a)(6) (Regulation Z: definition of “business day”) · checked Nov 10, 2026Buydown
See Discount points or Temporary buydown.
C
Caps (ARM)
Limits on how much an ARM rate can change: the initial adjustment cap for the first change, the subsequent cap for each later change, and the lifetime cap on the total change from the starting rate. Lenders sometimes write them as three numbers, such as 2/1/5.
More: The three caps
Source: CFPB: “What are rate caps with an adjustable-rate mortgage (ARM), and how do they work?” (Ask CFPB #1951, last reviewed Jan 14, 2025); CFPB: “Adjustable-Rate Mortgages” booklet (Consumer Handbook on Adjustable-Rate Mortgages, last updated September 2026) · checked Nov 10, 2026Cash flow analysis (Form 1084)
Fannie Mae’s worksheet for turning a self-employed borrower’s tax returns into qualifying income. It starts from the taxable profit, adds back items such as depreciation, and subtracts items such as non-deductible meals.
More: How self-employed income is figured
Source: Fannie Mae Form 1084, Cash Flow Analysis (June 2019); Fannie Mae Selling Guide B3-3.5-01, Underwriting Factors and Documentation for a Self-Employed Borrower (12/13/2023) · checked Nov 10, 2026Cash to close
The amount you bring to closing after the down payment, closing costs, credits, and adjustments are added up. The Loan Estimate and the Closing Disclosure each show the calculation.
More: Closing cost calculator
Source: 12 CFR 1026.37(f), (g), and (h) (Regulation Z: Loan Estimate closing cost details and cash to close); 12 CFR 1026.38 (Regulation Z: Closing Disclosure content) · checked Nov 10, 2026Clear to close
A common lender term for final approval: the underwriter has signed off on the conditions, and the loan can move to the Closing Disclosure and closing.
Closing costs
The fees and charges for getting the loan and completing the purchase, apart from the down payment. The Loan Estimate groups them into lettered sections, from origination charges to other costs.
More: Where closing costs appear on the Loan Estimate
Source: 12 CFR 1026.37(f), (g), and (h) (Regulation Z: Loan Estimate closing cost details and cash to close) · checked Nov 10, 2026Closing Disclosure (CD)
The form that shows your final loan terms and closing costs. The lender must make sure you receive it no later than three business days before consummation, so you can compare it with the Loan Estimate.
More: Loan Estimate vs. Closing Disclosure
Source: 12 CFR 1026.19(f)(1)–(2) (Regulation Z: Closing Disclosure timing, receipt, waiver, and corrected disclosures); CFPB: “What is a Closing Disclosure?” (Ask CFPB #1983, last reviewed May 2, 2023) · checked Nov 10, 2026Combined loan-to-value (CLTV)
All loans secured by the home, the first mortgage plus any second liens, divided by the home’s value.
More: Loan-to-value, step by step · LTV and CLTV calculator
Source: Fannie Mae Selling Guide B2-1.2-01, Loan-to-Value (LTV) Ratios · checked Nov 10, 2026Conforming loan limit
The largest loan Fannie Mae and Freddie Mac can buy, announced each year by FHFA. For 2026 the one-unit baseline is $832,750, and the high-cost ceiling is $1,249,125.
More: Conventional loans
Source: FHFA: “FHFA Announces Conforming Loan Limit Values for 2026” (Nov 25, 2025) · checked Nov 9, 2026Consummation
The day you sign and become obligated on the loan. The Closing Disclosure’s 3-business-day timing counts back from it.
More: Initial vs. final Closing Disclosure
Source: 12 CFR 1026.19(f)(1)–(2) (Regulation Z: Closing Disclosure timing, receipt, waiver, and corrected disclosures) · checked Nov 10, 2026Cushion (escrow)
Extra money a servicer may keep in the escrow account to cover unexpected increases. It can be no more than one-sixth of the estimated total annual escrow payments, and your loan documents can set a lower limit.
More: How the monthly escrow amount is set
Source: 12 CFR 1024.17 (Regulation X, escrow accounts) · checked Nov 10, 2026D
Debt-to-income ratio (DTI)
Monthly payments compared with gross monthly income, written as a percentage. Lenders figure it two ways: front-end (housing payment only) and back-end (housing payment plus other monthly debts).
More: DTI and LTV explained · DTI calculator
Source: Fannie Mae Selling Guide B3-6-02, Debt-to-Income Ratios (04/02/2025) · checked Nov 10, 2026; HUD Handbook 4000.1, II.A.5 (manual underwriting ratios and compensating factors) · checked Nov 9, 2026Deficiency (escrow)
A negative balance in the escrow account at the time of the escrow analysis. Regulation X sets how a servicer may ask you to repay it.
More: Shortages, deficiencies, and surpluses
Source: 12 CFR 1024.17(f) and (i) (Regulation X: escrow shortages, deficiencies, surpluses, and annual escrow statements) · checked Nov 9, 2026Discount points
Money paid at closing to lower the note rate for the life of the loan. One point equals 1% of the loan amount, and points are listed under Origination Charges on the Loan Estimate.
More: Permanent buydowns: discount points
Source: CFPB: “How should I use lender credits and points (also called discount points)?” (Ask CFPB #136, last reviewed Oct 19, 2023); 12 CFR 1026.37(f)(1)(i) (Regulation Z: points itemized under Origination Charges on the Loan Estimate) · checked Nov 10, 2026E
Escrow account
An account the servicer uses to collect property taxes and insurance with each monthly payment and pay those bills when they come due. Each month it may collect one-twelfth of the expected annual bills, plus a limited cushion.
More: Escrow accounts · Escrow jump after the first tax bill
Source: 12 CFR 1024.17 (Regulation X, escrow accounts) · checked Nov 10, 2026Escrow analysis
The servicer’s yearly review of the escrow account. It resets the monthly escrow amount for the coming year and shows any shortage, deficiency, or surplus.
More: The annual escrow analysis and statement
Source: 12 CFR 1024.17(f) and (i) (Regulation X: escrow shortages, deficiencies, surpluses, and annual escrow statements) · checked Nov 9, 2026Extra principal payment
Money paid beyond the scheduled payment to lower the loan balance, which shortens the loan and cuts total interest. Federal servicing rules list failing to apply an accepted payment under the loan terms as an error you can raise with the servicer.
More: Extra payments calculator · How your servicer must handle payments
Source: 12 CFR 1024.35(a)–(e) (Regulation X: error resolution) · checked Nov 10, 2026F
FHA annual MIP
FHA’s ongoing mortgage insurance premium, set as a yearly rate and paid monthly. The rate, and whether it lasts 11 years or the mortgage term, depend on the term, the base loan amount, and the LTV.
More: FHA upfront and annual premiums
Source: HUD Handbook 4000.1, Appendix 1.0 – Mortgage Insurance Premiums (03/20/2023) · checked Nov 9, 2026FHA upfront MIP (UFMIP)
A one-time FHA mortgage insurance premium of 1.75% of the base loan amount, which can be added to the loan.
More: FHA upfront and annual premiums · Mortgage insurance comparison
Source: HUD Handbook 4000.1, Appendix 1.0 – Mortgage Insurance Premiums (03/20/2023) · checked Nov 9, 2026Form 4506-C
The IRS form you sign so a lender can get your tax transcripts through the IRS Income Verification Express Service. Fannie Mae has each borrower whose income is used sign one at or before closing, unless all of that borrower’s income is validated by DU.
More: IRS transcripts
Source: IRS: “Income Verification Express Service for taxpayers” (page last reviewed or updated Apr 19, 2026); Fannie Mae Selling Guide B3-3.1-02, Tax Return and Transcript Documentation Requirements (06/03/2026) · checked Nov 10, 2026Front-end DTI
The monthly housing payment (principal, interest, taxes, insurance, mortgage insurance or fee, and HOA dues) divided by gross monthly income.
More: Debt-to-income, step by step
Source: HUD Handbook 4000.1, II.A.5 (manual underwriting ratios and compensating factors) · checked Nov 9, 2026Fully indexed rate
An ARM’s index plus its margin, before any cap limits the change. Some programs use it to figure the qualifying payment on certain ARMs.
More: How an ARM rate is set
Source: CFPB: “Adjustable-Rate Mortgages” booklet (Consumer Handbook on Adjustable-Rate Mortgages, last updated September 2026); Fannie Mae Selling Guide B3-6-04, Qualifying Payment Requirements · checked Nov 10, 2026G
Gift letter
A signed letter from the person giving you money toward the purchase, stating the amount and that no repayment is expected. Lenders also document how the money moved from the donor to you or to closing.
More: Gifts toward the down payment or closing costs
Source: Fannie Mae Selling Guide B3-4.3-04, Personal Gifts (02/04/2026); HUD Handbook 4000.1, II.A.4.d.iii Sources of Funds (TOTAL): Checking and Savings Accounts; Gifts (Personal and Equity) (last revised 8/12/2026) · checked Nov 10, 2026Gross-up (nontaxable income)
Increasing nontaxable income, such as most child support, by a set percentage so it can be compared fairly with income counted before taxes. The percentage differs by program.
More: Grossing up nontaxable support
Source: Fannie Mae Selling Guide B3-3.1-01, General Income Information (10/07/2026); HUD Handbook 4000.1, II.A.4.c.xii(B) Alimony, Child Support, and Maintenance Income, and II.A.4.c.xii(P) Nontaxable Income (Grossing Up) · checked Nov 9, 2026H
Home inspection
An inspection you arrange to look at a home’s condition. It is separate from the appraisal: FHA and VA both say their appraisals are not home inspections.
More: Home inspection vs. appraisal
Source: HUD/FHA form HUD-92564-CN, “For Your Protection: Get a Home Inspection” (02/09/2023); VA Pamphlet 26-7, Lenders Handbook, Chapter 12, Topic 1, Minimum Property Requirement Procedures (change date Feb 27, 2026; KnowVA article updated Aug 12, 2026) · checked Nov 10, 2026Homestead exemption
A reduction in the taxable value of a home you own and live in, set by state law and applied by your local appraisal district or tax assessor for eligible owners who apply. Amounts and rules vary by state.
More: Property-tax exemptions by state
Source: Texas Tax Code §11.13(b), (c) (residence homestead); Florida Statutes §196.031 (2026), Exemption of homesteads, subsection (1)(a)–(b); California Revenue and Taxation Code §218 (amended Stats. 2023, ch. 781) · checked Nov 10, 2026I
Index (ARM)
A published measure of interest rates that an ARM follows after its starting period; the new rate is the index plus the margin. FHA ARMs, for example, use the 1-year Constant Maturity Treasury or the 30-day average SOFR.
More: How an ARM rate is set
Source: CFPB: “Adjustable-Rate Mortgages” booklet (Consumer Handbook on Adjustable-Rate Mortgages, last updated September 2026); HUD Handbook 4000.1, II.A.8 (Section 251 adjustable rate mortgages) · checked Nov 10, 2026Interested party contribution (seller credit)
Money a seller, builder, or other party with an interest in the sale pays toward the buyer’s costs. Each program caps it: Fannie Mae at 3%, 6%, or 9% depending on LTV (2% for investment properties), FHA and USDA at 6%, and VA seller concessions at 4%, each measured against a value the program defines.
More: Seller and interested-party contribution limits
Source: Fannie Mae Selling Guide B3-4.1-02, Interested Party Contributions (IPCs) (05/07/2025) · checked Nov 10, 2026; HUD Handbook 4000.1, II.A.4 (interested party contributions) · checked Nov 10, 2026; USDA Handbook HB-1-3555, Chapter 6 (rev 05-05-25), paragraph 6.2 C, Interested Party Concessions · checked Nov 9, 2026; VA: “VA funding fee and loan closing costs” (page updated Oct 5, 2026) · checked Nov 10, 2026L
Large deposit
A deposit on your bank statements that the lender must trace to its source. Fannie Mae and FHA use more than 50% of your monthly qualifying income as the line for a purchase.
More: Explanations for large deposits
Source: Fannie Mae Selling Guide B3-4.2-02, Depository Accounts (12/14/2022); HUD Handbook 4000.1, II.A.4.d.iii Sources of Funds (TOTAL): Checking and Savings Accounts; Gifts (Personal and Equity) (last revised 8/12/2026) · checked Nov 10, 2026Lender credit
Money from the lender toward your closing costs in exchange for a higher interest rate. It works in reverse of discount points.
More: Permanent buydowns: discount points
Source: CFPB: “How should I use lender credits and points (also called discount points)?” (Ask CFPB #136, last reviewed Oct 19, 2023) · checked Nov 10, 2026Lien
A legal claim against a property that secures a debt or obligation, such as the mortgage itself, unpaid property taxes, HOA assessments, or a contractor’s claim. A title search looks for recorded liens so they can be handled before or at closing.
More: Liens
Source: 12 CFR 1026.2(a)(24)–(25) (Regulation Z: residential mortgage transaction; security interest); Texas Tax Code §32.01(a), (d) (tax lien); Texas Property Code §53.021 (persons entitled to a mechanic’s lien) · checked Nov 10, 2026Loan Estimate (LE)
The form showing the estimated rate, payment, and closing costs for a loan. The lender must deliver or mail it no later than the third business day after it receives your application.
More: The two forms: Loan Estimate and Closing Disclosure
Source: 12 CFR 1026.19(e)(1)(iii) and (e)(3) (Regulation Z: Loan Estimate timing and good-faith tolerances); 12 CFR 1026.37(f), (g), and (h) (Regulation Z: Loan Estimate closing cost details and cash to close) · checked Nov 10, 2026Loan-level price adjustment (LLPA)
A Fannie Mae price adjustment set by loan features such as credit score, LTV, loan purpose, occupancy, and property type. The adjustments add together and are collected from the lender; the matrix doesn’t set how a lender reflects them in the rate or points, and some loans, such as HomeReady, have them waived.
More: Fannie Mae LLPAs
Source: Fannie Mae Loan-Level Price Adjustment (LLPA) Matrix (effective Sep 30, 2026) · checked Nov 10, 2026Loan-to-value (LTV)
The first mortgage amount divided by the home’s value. For a purchase, the value is generally the lower of the purchase price and the appraised value.
More: Loan-to-value, step by step · LTV and CLTV calculator
Source: Fannie Mae Selling Guide B2-1.2-01, Loan-to-Value (LTV) Ratios; Freddie Mac Single-Family Seller/Servicer Guide, Section 4203.1, LTV/TLTV/HTLTV ratio requirements (effective 10/07/2026) · checked Nov 10, 2026M
Margin (ARM)
The amount the lender adds to the index to set an ARM’s rate after the starting period. The Loan Estimate lists it in the Adjustable Interest Rate table.
More: How an ARM rate is set
Source: CFPB: “Adjustable-Rate Mortgages” booklet (Consumer Handbook on Adjustable-Rate Mortgages, last updated September 2026); 12 CFR 1026.37(c) and (j), and 1026.38(c) and (n) (Regulation Z: Projected Payments and Adjustable Interest Rate tables) · checked Nov 10, 2026Minimum Required Investment (FHA)
FHA’s minimum cash investment: at least 3.5% of the Adjusted Value with a credit score of 580 or higher, and 10% with a score from 500 to 579.
More: Minimum down payment and credit scores
Source: HUD Handbook 4000.1, II.A.1.b.ii(A)(3) Borrower Minimum Decision Credit Score; II.A.2.a.iv Calculating Maximum Mortgage Amounts on Purchases; II.A.2.b.i–ii Loan-to-Value Limits (last revised 8/12/2026) · checked Nov 9, 2026Mortgage insurance
See Private mortgage insurance, FHA annual MIP, VA funding fee, or USDA annual fee.
Mortgage or deed of trust
The document that makes the home security for the loan, so the lender has a lien on it until the loan is paid off.
More: Liens
Source: 12 CFR 1026.2(a)(24)–(25) (Regulation Z: residential mortgage transaction; security interest) · checked Nov 10, 2026N
Note rate
The interest rate written in the loan’s promissory note, used to figure the principal and interest payment. Discount points lower it for the life of the loan; a temporary buydown lowers the payment for a time but doesn’t change the note rate.
More: Rate buydowns and discount points
Source: CFPB: “How should I use lender credits and points (also called discount points)?” (Ask CFPB #136, last reviewed Oct 19, 2023); Fannie Mae Selling Guide B2-1.4-04, Temporary Interest Rate Buydowns (08/07/2024) · checked Nov 10, 2026Notice of error
A written notice to your servicer saying it made a covered error, such as not applying a payment correctly. The servicer must acknowledge it and generally respond within set deadlines.
More: If a payment is misapplied
Source: 12 CFR 1024.35(a)–(e) (Regulation X: error resolution) · checked Nov 10, 2026O
Origination charges
What the lender charges to make the loan, listed in Section A of the Loan Estimate, including any discount points.
More: Where closing costs appear on the Loan Estimate
Source: 12 CFR 1026.37(f), (g), and (h) (Regulation Z: Loan Estimate closing cost details and cash to close); 12 CFR 1026.37(f)(1)(i) (Regulation Z: points itemized under Origination Charges on the Loan Estimate) · checked Nov 10, 2026P
Payoff statement
A statement from the servicer of the exact amount needed to pay the loan off on a given date. For a loan secured by your home, the servicer generally must send an accurate one within seven business days of a written request.
More: How your servicer must handle payments
Source: 12 CFR 1026.36(c)(1) and (c)(3) (Regulation Z: crediting periodic payments, partial payments, and payoff statements) · checked Nov 10, 2026PITI
Principal, interest, taxes, and insurance: the usual parts of a monthly house payment. Mortgage insurance or a guarantee fee, and HOA dues, can sit on top.
PMMS (Primary Mortgage Market Survey)
Freddie Mac’s weekly survey of national average rates for 30-year and 15-year fixed-rate loans. They are survey averages, not quotes; the payment calculator page shows the latest week with attribution.
More: Weekly averages on the payment calculator page
Source: Freddie Mac: Primary Mortgage Market Survey® (PMMS®), weekly U.S. averages · checked Nov 10, 2026Points
See Discount points.
Prepaids
Costs paid at closing for items that come due later, such as prepaid interest and the homeowner’s insurance premium, shown in Section F of the Loan Estimate. The initial escrow deposit is listed separately, in Section G.
More: Prepaids vs. initial escrow deposits
Source: 12 CFR 1026.37(f), (g), and (h) (Regulation Z: Loan Estimate closing cost details and cash to close) · checked Nov 10, 2026Prepayment penalty
A charge for paying a loan off early or paying down principal ahead of schedule. Federal rules allow it only on certain fixed-rate qualified mortgages, for the first three years and within set caps, and the Loan Estimate shows whether a loan has one.
More: Prepayment penalties
Source: 12 CFR 1026.43(g) (Regulation Z: limits on prepayment penalties); 12 CFR 1026.37(b)(4) (Regulation Z: “Prepayment Penalty” on the Loan Estimate) · checked Nov 10, 2026Private mortgage insurance (PMI)
Mortgage insurance on a conventional loan, required by Fannie Mae and Freddie Mac when the LTV is above 80%. Under federal law you can ask to cancel it when the balance is scheduled to reach 80% of the home’s original value, if you meet the conditions, and it ends automatically when the balance is scheduled to reach 78%.
More: Conventional: PMI · Mortgage insurance comparison
Source: Fannie Mae Selling Guide B7-1-01, Provision of Mortgage Insurance (04/02/2025) · checked Nov 10, 2026; Freddie Mac Single-Family Seller/Servicer Guide, Section 4701.1, Mortgage insurance requirements (effective 02/04/2026) · checked Nov 10, 2026; CFPB: “When can I remove private mortgage insurance (PMI) from my loan?” (Ask CFPB #202) · checked Nov 9, 2026Q
Qualifying rate
The rate a lender uses to figure the payment in the debt-to-income ratio. It is often the note rate, but for some ARMs a program requires a higher rate, and temporary buydowns are generally underwritten at the note rate.
More: ARM program rules · Rate used for a temporary buydown
Source: Fannie Mae Selling Guide B3-6-04, Qualifying Payment Requirements; Fannie Mae Selling Guide B2-1.4-04, Temporary Interest Rate Buydowns (08/07/2024) · checked Nov 10, 2026R
Recast
When a servicer recalculates the monthly payment on a lower balance over the time left on the loan, usually after a large principal payment. Whether it’s offered, and on what terms, depends on the servicer and the loan documents.
More: Recasting
Reserves
Funds a borrower still has available after closing. Under Fannie Mae’s manual underwriting, the 36% back-end DTI figure can go up to 45% with the credit score and reserves its Eligibility Matrix requires.
More: Published guideline figures by program
Source: Fannie Mae Selling Guide B3-6-02, Debt-to-Income Ratios (04/02/2025) · checked Nov 10, 2026Residual income (VA)
The money left each month for family living expenses after the housing payment, taxes, and other obligations. VA’s 41% DTI figure is a guide that is secondary to residual income.
More: Published guideline figures by program
Source: 38 CFR 36.4340 (VA underwriting standards), paragraphs (c), (d), (f)(4), (f)(5), and (g)(9) (eCFR, up to date as of Nov 6, 2026); VA Pamphlet 26-7 (VA Lenders Handbook), Chapter 4, Topic 10.b Debt-to-Income Ratio (KnowVA article 554400000330850, updated Aug 26, 2026) · checked Nov 9, 2026Right of rescission
The right to cancel certain refinances of your principal dwelling until midnight of the third business day after closing, delivery of the notice, and the required disclosures, whichever is last. A loan to buy the home doesn’t have it.
More: Funding, and the right to cancel a refinance
Source: 12 CFR 1026.23(a), (c), and (f) (Regulation Z: right of rescission) · checked Nov 10, 2026S
Schedule K-1
The tax form a partnership or S corporation gives each owner showing that owner’s share of the business’s income. Fannie Mae can count K-1 income when there is a stable history of distributions or the business has enough liquidity.
More: Partnerships and S corporations
Source: Fannie Mae Selling Guide B3-3.6-07, Income or Loss Reported on IRS Form 1065 or IRS Form 1120S, Schedule K-1 (05/07/2025) · checked Nov 10, 2026Seller credit
Shortage (escrow)
When the escrow balance is projected to fall below the target balance at the escrow analysis. Depending on its size, the servicer may leave it alone, ask for repayment within 30 days, or spread it over at least 12 months.
More: Shortages, deficiencies, and surpluses · Escrow jump calculator
Source: 12 CFR 1024.17(f) and (i) (Regulation X: escrow shortages, deficiencies, surpluses, and annual escrow statements) · checked Nov 9, 2026SOFR
The Secured Overnight Financing Rate. Its 30-day average is a common ARM index: Freddie Mac buys only ARMs that use it, and FHA allows it alongside the 1-year Constant Maturity Treasury.
More: ARM program rules
Source: Freddie Mac Single-Family Seller/Servicer Guide, Section 4401.1, General ARM eligibility requirements (effective 11/05/2025); HUD Handbook 4000.1, II.A.8 (Section 251 adjustable rate mortgages) · checked Nov 10, 2026Surplus (escrow)
More money in the escrow account than needed at the escrow analysis. If you are current, a surplus of $50 or more is refunded within 30 days.
More: Shortages, deficiencies, and surpluses
Source: 12 CFR 1024.17(f) and (i) (Regulation X: escrow shortages, deficiencies, surpluses, and annual escrow statements) · checked Nov 9, 2026T
Tax value
See Assessed value.
Temporary buydown
Money paid up front to lower the payment for the first year or few years, as in a 2-1, 3-2-1, or 1-0 buydown, after which the full note-rate payment applies. A seller or builder can pay for it within the program’s contribution limits.
More: Temporary buydowns
Source: Fannie Mae Selling Guide B2-1.4-04, Temporary Interest Rate Buydowns (08/07/2024); HUD Handbook 4000.1, II.A.4.a.iii(A)(1)(c) and II.A.5.d.vii(B)(3) (temporary interest rate buydowns: note rate for qualifying), II.A.6.a.ix (buydown escrow), II.A.8.d.iii and II.A.8.f.vi (not permitted with refinances or Section 251 ARMs); VA Pamphlet 26-7, Lenders Handbook, Chapter 7, Topic 7, Loans Involving Temporary Interest Buydowns (change date Jul 27, 2023; KnowVA article updated Jul 24, 2026) · checked Nov 10, 2026Title insurance
Insurance against claims on the home that date from before the purchase, such as a previous owner’s unpaid taxes. A lender’s policy protects the lender and is usually required; an owner’s policy protects your equity and is optional.
More: Title search and title insurance
Source: CFPB: “What is owner’s title insurance?” (Ask CFPB #164, last reviewed Oct 19, 2023); CFPB: “What is lender’s title insurance?” (Ask CFPB #163) · checked Nov 10, 2026Tolerance (closing costs)
Limits on how much charges at closing can exceed the Loan Estimate: zero tolerance for most charges, 10% in total for certain shoppable third-party services and recording fees, and no set limit for items such as prepaid interest, as long as the estimate was made in good faith.
More: How much the estimate can change · Tolerance buckets
Source: 12 CFR 1026.19(e)(1)(iii) and (e)(3) (Regulation Z: Loan Estimate timing and good-faith tolerances) · checked Nov 10, 2026U
USDA annual fee
USDA’s ongoing guarantee fee, 0.35% for fiscal year 2027, figured on the average scheduled balance for each year of the loan and collected monthly with the payment.
More: USDA guarantee fees
Source: USDA Rural Development: “Fiscal Year 2027 Conditional Commitment Notice” (Sep 16, 2026); USDA Rural Development: “Annual Fee Calculation” (method sheet) · checked Nov 9, 2026USDA upfront guarantee fee
A one-time USDA fee, 1.00% for fiscal year 2027, on purchase and refinance loans. USDA can change it each fiscal year.
More: USDA guarantee fees
Source: USDA Rural Development: “Fiscal Year 2027 Conditional Commitment Notice” (Sep 16, 2026) · checked Nov 9, 2026V
VA entitlement
How much of the VA home loan benefit a veteran has available to use. VA says a veteran with full entitlement has no VA loan limit; with partial entitlement, VA’s formula uses the county conforming limit.
More: VA loans
Source: VA: “VA home loan limits” (page updated Aug 12, 2025) · checked Nov 9, 2026VA funding fee
A one-time fee charged on most VA loans. The rate depends on the down payment and on first or subsequent use, and some veterans, including those receiving VA disability compensation, are exempt.
More: VA: the funding fee
Source: VA: “VA funding fee and loan closing costs” (page updated Oct 5, 2026) · checked Nov 10, 2026Verification of deposit (VOD)
A form your bank fills out to confirm your account and balance, which lenders may accept in place of statements.
More: VOD and bank statements
Source: Fannie Mae Selling Guide B3-4.2-01, Verification of Deposits and Assets (05/04/2022); HUD Handbook 4000.1, II.A.4.d.iii Sources of Funds (TOTAL): Checking and Savings Accounts; Gifts (Personal and Equity) (last revised 8/12/2026) · checked Nov 10, 2026Verification of employment (VOE)
Confirmation of your job and income from your employer, in writing or electronically, plus a final verbal check shortly before closing. Fannie Mae’s verbal check for employment income must be within 10 business days before the note date.
More: Written VOE · Verbal VOE
Source: Fannie Mae Selling Guide B3-3.1-04, Verbal Verification of Employment (10/07/2026); HUD Handbook 4000.1, II.A.4.c.ii Employment Related Income (TOTAL) (last revised 8/12/2026) · checked Nov 10, 2026Verification of rent or mortgage (VOR or VOM)
Confirmation of your rent or mortgage payment history from the landlord or lender, used when the findings or program rules call for it.
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Source: VA Pamphlet 26-7 (VA Lenders Handbook), Chapter 4: Topic 2 (employment and self-employment income), Topic 4 (assets and gifts), Topic 7 (credit history), Topic 8 (AUS documentation tables) (KnowVA article 554400000330850, updated Aug 26, 2026); USDA Handbook HB-1-3555, Chapter 10 (rev 08-05-25), paragraph 10.2 and Attachment 10-A (credit report age, inquiries, undisclosed debts, rent history) · checked Nov 10, 2026Definitions are general education. Guidelines change; confirm with a licensed lender.