Mortgage & VA Loan Glossary

Mortgage terms in plain English.

APR

Annual Percentage Rate: the yearly cost of a loan including interest and certain fees, shown on your Loan Estimate.

ARM

Adjustable-rate mortgage: a fixed initial period, then the rate adjusts based on an index plus a margin, within caps.

Break-even point

How long it takes monthly savings from a refinance to repay its closing costs: costs divided by monthly savings.

Cash-out refinance

A new, larger mortgage that pays off the old one and gives you the difference in cash.

Certificate of Eligibility (COE)

The VA document confirming you qualify for the VA home loan benefit and showing your entitlement.

Closing Disclosure

The final document showing your loan terms and costs, provided at least three business days before closing.

Conforming loan limit

The maximum loan size Fannie Mae and Freddie Mac will buy, set each year by FHFA. Loans above it are jumbo loans.

DTI

Debt-to-income ratio: your monthly debts divided by your gross monthly income.

Entitlement

The amount VA guarantees to your lender on your behalf, which is what enables 0% down VA loans.

Escrow

An account your servicer uses to pay property taxes and homeowners insurance from your monthly payment.

Funding fee

A one-time VA fee, a percentage of the loan amount, that's waived for veterans receiving service-connected disability compensation and others VA lists.

IRRRL

Interest Rate Reduction Refinance Loan, VA's streamline refinance from one VA loan to another.

Loan Estimate

A standardized three-page disclosure of estimated rate, payment and closing costs, provided within three business days of application.

LTV

Loan-to-value: the loan amount divided by the home's value.

MIP / PMI

Mortgage insurance on FHA loans (MIP) and conventional loans (PMI). VA loans have no monthly mortgage insurance.

Net tangible benefit

VA's requirement that a refinance is in the veteran's financial interest, such as a lower rate or a move to a fixed rate.

Rate lock

A lender's commitment to hold an interest rate and points for a set period while your loan is processed.

Residual income

A VA underwriting test of how much monthly income is left after major expenses, based on family size and region.

Seasoning

Required time before refinancing a VA loan: the later of 210 days after the first payment due date or six monthly payments.

Streamline refinance

A refinance with reduced documentation, such as a VA IRRRL or FHA streamline.