VA loan and mortgage terms, defined.

Adjustable-Rate Mortgage (ARM)

A mortgage whose rate can change on a set schedule.

Amortization

The schedule that pays off principal and interest over time.

Annual Percentage Rate (APR)

The true annual cost of a loan including most fees.

Appraisal

An independent estimate of a home's value.

Basic Allowance for Housing (BAH)

Tax-free housing stipend for military members.

Break-Even Point

How long it takes for refinance savings to exceed the costs.

Cash-Out Refinance

A refinance that lets you pull equity out of your home.

Certificate of Eligibility (COE)

The VA document proving VA loan eligibility.

Closing

The final signing that transfers ownership and funds.

Closing Costs

Fees paid at closing to originate and record the loan.

Closing Disclosure (CD)

The final loan cost summary delivered before closing.

Co-Borrower

A second person on the loan and title.

Compensating Factors

Strengths that offset a weakness in your file.

Conforming Loan Limit

The maximum loan amount Fannie/Freddie will back.

Credit Score

A 300–850 score summarizing credit risk.

Debt-to-Income Ratio (DTI)

Monthly debt payments divided by gross monthly income.

Deed of Trust

The security instrument used in most states.

Discount Points

Prepaid interest that lowers your rate.

Down Payment

Cash paid up front toward the purchase price.

Earnest Money Deposit (EMD)

Good-faith deposit that accompanies your offer.

Equity

The portion of your home you actually own.

Escrow

A third-party account that holds funds until conditions are met.

FICO Score

The most widely used credit score.

Fixed-Rate Mortgage

A mortgage whose rate never changes.

Foreclosure

The legal process a lender uses to reclaim a property.

Gross Monthly Income

Income before taxes and deductions.

Gross-Up

Adjusting non-taxable income up for qualifying purposes.

Hazard Insurance

Homeowners insurance protecting the property.

Home Equity Line of Credit (HELOC)

A revolving credit line secured by your home.

High-Cost County

A county with higher conforming loan limits.

Impound Account

Another name for an escrow account.

Index

The benchmark rate an ARM adjusts against.

Interest Rate

The percentage a lender charges to borrow.

Interest Rate Reduction Refinance Loan (IRRRL)

The VA Streamline Refinance.

Joint VA Loan

A VA loan with a non-spouse co-borrower.

Loan Estimate (LE)

The 3-page cost disclosure delivered within 3 business days of application.

Loan-to-Value (LTV)

Loan amount divided by home value.

Loss Mitigation

Options to avoid foreclosure.

Margin

The fixed spread added to an ARM index.

Minimum Property Requirements (MPRs)

VA's condition standards for financed homes.

Mortgage Insurance (PMI/MIP)

Insurance that protects the lender against default.

Net Tangible Benefit (NTB)

The measurable improvement required to refinance.

Origination Fee

The lender's fee for creating the loan.

Prequalification

A rough eligibility estimate from a lender.

Preapproval

A conditional loan commitment based on verified documents.

Principal

The balance you still owe.

Recoupment Period

How fast IRRRL closing costs are recovered by savings.

Reconsideration of Value (ROV)

Formal request to reconsider a low appraisal.

Residual Income

Monthly income left after major obligations.

Restoration of Entitlement

Reclaiming VA entitlement used on a prior loan.

Servicemembers Civil Relief Act (SCRA)

Federal law with financial protections for active-duty members.

Seller Concessions

Costs the seller agrees to pay for the buyer.

Temporary Buydown (2-1, 3-2-1)

Seller-funded rate reduction for the first years.

Title Insurance

Insurance protecting against title defects.

Tradeline

A credit account reported to the bureaus.

Underwriting

The formal loan approval process.

VA Entitlement

The dollar amount the VA will guaranty on your loan.

VA Funding Fee

A one-time fee that keeps the VA loan program self-funded.

VA Loan

A mortgage guaranteed by the U.S. Department of Veterans Affairs.