Mortgage lingo can be overwhelming — especially when you’re making the biggest financial decision of your life. This glossary covers 50 essential terms every California homebuyer should understand before applying for a home loan.
A–C
Adjustable-Rate Mortgage (ARM): A mortgage with an interest rate that can change periodically after an initial fixed period (e.g., 5/1 ARM = fixed for 5 years, then adjusts annually).
Amortization: The process of paying off a loan through regular payments. Early payments are mostly interest; later payments are mostly principal.
Annual Percentage Rate (APR): The total annual cost of a loan, including interest and fees, expressed as a percentage. More comprehensive than the interest rate alone.
Appraisal: An independent professional estimate of a property’s market value. Required by lenders before approving a purchase or refinance.
Assumption: Taking over a seller’s existing mortgage loan, including their interest rate. Rare but valuable when rates are low.
Bridge Loan: Short-term financing that bridges the gap between buying a new home and selling your current one.
CalHFA: California Housing Finance Agency. The state agency that offers below-market interest rate programs and down payment assistance for first-time buyers.
Cash-Out Refinance: Refinancing for more than you owe to receive the difference as cash.
Certificate of Eligibility (COE): Documentation from the VA confirming you qualify for a VA home loan benefit.
Closing Costs: Fees and expenses paid at the close of a real estate transaction, including lender fees, title insurance, appraisal, and prepaid items. Typically 2-3% of the loan amount in California.
Closing Disclosure: The final itemized statement of all loan terms and closing costs, provided at least 3 days before closing.
Conforming Loan: A mortgage that meets Fannie Mae/Freddie Mac guidelines. In high-cost California counties, the 2026 limit is $1,209,750.
D–I
Debt-to-Income Ratio (DTI): Monthly debt payments divided by gross monthly income. Most lenders want total DTI below 43-45%.
Deed of Trust: California’s equivalent of a mortgage — the legal document that pledges your home as collateral for the loan.
Down Payment: The portion of the purchase price you pay upfront. The remainder is financed through the mortgage.
DSCR Loan: Debt Service Coverage Ratio loan. Qualifies based on whether rental income covers the mortgage payment — ideal for investors.
Earnest Money Deposit (EMD): Good-faith money deposited by a buyer after an offer is accepted. Typically 1-3% of the purchase price in California.
Equity: The difference between your home’s market value and what you owe on your mortgage.
Escrow: In California, a neutral third party that holds funds and documents during a real estate transaction and ensures all conditions are met before closing.
FHA Loan: A mortgage insured by the Federal Housing Administration, requiring as little as 3.5% down with a 580 credit score.
Fixed-Rate Mortgage: A mortgage with an interest rate that never changes for the life of the loan.
Funding Fee: A one-time fee charged on VA loans, typically financed into the loan amount. Veterans with service-connected disabilities are often exempt.
HELOC: Home Equity Line of Credit. A revolving credit line secured by your home equity, with a variable rate.
J–N
Jumbo Loan: A mortgage that exceeds the conforming loan limit. In Marin County, any loan above $1,209,750 in 2026.
Loan Estimate: A standardized three-page document showing your loan terms and estimated closing costs, provided within 3 days of application.
Loan-to-Value (LTV): The loan amount divided by the property’s appraised value. Lower LTV = less risk for the lender = better rate.
Lock/Rate Lock: An agreement that the lender will honor a specific interest rate for a set period, typically 30-60 days.
Mortgage Insurance Premium (MIP): Insurance required on FHA loans. Includes an upfront charge (1.75%) and annual premium paid monthly.
Non-QM Loan: Non-Qualified Mortgage. Loans that don’t meet standard Fannie/Freddie guidelines — includes bank statement loans, DSCR loans, and others.
O–R
Origination Fee: A fee charged by the lender for processing your loan. Often expressed as a percentage of the loan amount (1 point = 1%).
PITI: Principal, Interest, Taxes, and Insurance. The four components of your total monthly mortgage payment.
Points (Discount Points): Upfront payments to permanently reduce your interest rate. One point = 1% of the loan amount = approximately 0.25% rate reduction.
Pre-Approval: A lender’s written statement that you qualify for a specific loan amount, based on verified income, credit, and assets.
Principal: The original loan amount or the remaining balance owed, excluding interest.
Private Mortgage Insurance (PMI): Insurance required on conventional loans when down payment is less than 20%. Cancellable once you reach 20% equity.
Prop 13: California’s property tax limitation law. Your assessed value increases by a maximum of 2% per year, providing long-term tax stability.
R–Z
Rate and Term Refinance: A refinance that changes your rate and/or loan term without taking cash out.
Residual Income: A key VA loan qualifying factor. The amount of money left after paying all monthly obligations. VA uses residual income to ensure veterans can afford basic living expenses.
Reverse Mortgage: A loan for homeowners 62+ that allows access to home equity without monthly payments. Balance grows over time and is repaid when the home is sold.
Second Mortgage: A loan secured by your home in addition to your first mortgage. Includes HELOCs and home equity loans.
Title Insurance: Protects against defects in the property’s title. Lender’s title insurance is required; owner’s title insurance is recommended.
Underwriting: The lender’s process of evaluating your creditworthiness and determining whether to approve your loan.
VA Loan: A mortgage guaranteed by the U.S. Department of Veterans Affairs. Offers zero down payment, no PMI, and competitive rates for eligible veterans and service members.
Wholesale Lender: A lender that works through mortgage brokers rather than directly with consumers, typically offering lower rates than retail lenders.
Have questions about any of these terms in the context of your California home purchase? Contact DiVita Home Finance — we’re here to explain every detail in plain language.
